I think I can see where this telecoms reform is going

To sweeten the loss roaming revenues for mobile operators, however, the new package of will include provisions to simplify operating across the EU by synchronising national sales of airwaves.

Give it a couple of years and the claim will be that as it\’s an EU wide resource then the cash should be direct revenue to the EU.

They are simply desperate to have \”own resources\”….that is, money direct without national governments being able to tell them to fuck off.

Yeah, paranoia and all that. But it wouldn\’t in the least surprise me if that\’s what\’s coming down the pike.

27 thoughts on “I think I can see where this telecoms reform is going”

  1. To be fair, there isn’t a lot of cash in it any more. There were huge bonanzas around the 2000 mark, but what we have now is a number of boring, badly run (and often at least partly state owned) companies trying hard and often failing to eke out their cost of capital. (Recent auctions for 4G spectrum have generated a tiny fraction of what the 3G spectrum sold for). They are ferociously determined to retain their existing revenues, and are in hock with national governments and national regulators in order to do so. European regulators want to meddle more than proponents of free markets would like, but they at least do not suffer from the horrendous case of regulatory capture that prevails in most national markets.

  2. I assume its purpose is to allow large Telecom operators in France and Germany to smash smaller ones in lesser countries.

  3. Agree with Michael; I think you’re misparsing this.

    Kroes’s point is, it’s a damn sight easier if everyone in Europe uses the same frequency ranges for each wireless application, rather than the pseudo-random allocation (based largely on whether the military or the analogue TV lobbies are stronger in a given country) which has turned 4G into a complete and utter pain in the arse.

    A good example of how this works in practice is the way the EU adopted mandatory GSM on specified common frequencies, while the US adopted a random mix of incompatible things, and as a result the US ended up vastly behind Europe in mobile comms for almost two decades.

  4. I’m not overly fussed whether the resource (and associated revenue stream) belongs to the EU, to Westminster, or to the People’s Republic of Cornwall. But having a single set of EU-wide auctions would wipe out smaller players. The market would be restricted to those with access to the most capital. It’s handing over yet more power to Big Finance.

  5. The market would be restricted to those with access to the most capital.

    Groups like France Telecom, Deutsche Telecom, Telefonica, Vodafone and Hutchison Telecom? Yes, that would change the market unrecognisably. Oh.

    But in practice, despite its zero-impact on the big markets, even that won’t happen. It would ensure the groups above owned everything everywhere [*] which wouldn’t do in the small countries with their own state-ish telecoms monopolies who make up the majority of votes under QMV.

    Rather, it’s about ensuring everyone auctions the same spectrum at the same time, so everyone can roll out the same kit at the same time.

    [*] as opposed to Everything Everywhere, which two of them do.

  6. Given the importance of roaming revenues to most mobile carriers, this set of reforms is going to have a significant effect on tariff plans. It should make them a lot more transparent than they have been in the past now that the at times 70% margin calls are being squeezed. As John B points out, there are usually at least 2 suppliers in even the smallest countries – a state-ownedish one and one or more of Voda, Telefonica, DT or FT. Somehow, I don’t see the Dutch allowing KPN to get outbid for spectrum: does anyone?

  7. T-Mobile (Germany), Orange/France Telecom (France) and Telefonica/O2/Movistar (Spain) all former national monopolies and all still at least somewhat state owned and/or controlled all went on buying sprees in foreign countries (both in Europe and elsewhere) while (to varying extents – the French example is scandalous) their national governments and regulators protected them from competition in their domestic markets. They then failed to make much money in those foreign markets, but had a need for more capital none the less. They are now therefore under pressure from their national governments (particularly in the case of Germany and T-Mobile) to get out of those unproductive investments. The T-Mobile / Orange merger to form EE in the UK (really a case of T-Mobile being sold to Orange, but done in a convoluted way to pretend it is a merger of equals) is one such withdrawal, and the T-Mobile / MetroPCS merger (which is amongst other things a backdoor stockmarket listing, after which Deutsche Telecom will be able to slowly sell down its stake) is another. France Telecom and Telefonica are withdrawing more slowly despite their governments being much more broke than the Germans, but their greater apetites for risk may be why their governments are more broke in the first place.

  8. Nobody is going to get outbid for spectrum at this point. There is plenty of spectrum for all existing players to get enough for their needs. The extremely high prices paid for 3G licences in 2000 or so were paid because there were many potential new entrants who chose to participate in the auctions. Potential new entrants no longer exist.

  9. Yes – can def. see a push for EU-level services which generate revenue. Also happening with air traffic control.

  10. Tim, I agree about the long term fund raising aspirations of our benevolent bosses in Brussels. A cell phone tax and a carbon tax is a marriage made in heaven for them.

  11. The thing I like most about this blog is the opportunity to learn new things from informed people, irrespective of our ideological outlook, about topics of interest and importance. And, on occasion, to constructively contribute to such discussions.

    The thing I like the second-most about this blog is the way that amid said discussion, there are a bunch of people who know nothing at all about the topic yelling crazy one-liner talking points, despite the discussion having confirmed to informed people of all ideologies that the premise is absolute bollocks. And, on occasion, to call those people ignorant fuckwits.

  12. MJ: agree totally on DT/T-M (also the attempt to merge with T-M USA with AT&T, which would have suited everyone admirably apart from US consumers) and Orange.

    AIUI the O2 (Northern Europe) bit of Telefonica is quite profitable, as is the Latam bit – but the two businesses have very different growth and ARPU profiles as you might expect, so it wouldn’t be at all surprising for the Spanish government to insist on selling the two off separately.

  13. It might happen but more likely as unintended consequence than as part of the grand master plan. Consolidation has been normal in lots of other businesses too. We already have a lot of segmentation between the real network operators and dozens/hundreds of resellers in every market.

    What proves to me that the roaming charges were too high is that roaming is still offered by all the telcos despite the capped charges. If it wasn’t making a telco money they would simply not offer it, they aren’t obliged to so the fact they all do suggests they are still making money on it.

    That the market isn’t competitive enough is also shown by the fact that it is very difficult to find plans that undercut the EU-dictated rates.

    I’m not a fan of government price-setting and I guess my view is tainted by being part of the hyper-mobile euro elite that benefits from the regulation; but I can’t see the “importance of roaming revenues to telcos” as a great thing when it’s essentially gouging that hyper-mobile market segment to subsidise plans for the stick-in-the-muds.

    Given the availability of spectrum limits any national market to about four real providers price regulation begins to look like a necessary evil.

  14. This just strikes me as either grand standing or very good long term thinking.

    Roaming isn’t free. There is a cost in setting up and managing the international connections to the clearing houses or directly between MNOs.. OK its only a few 10os of bytes of signalling data every now and then but it soon adds up and there is a significant Capex in setting up the service.

    Then there is the cost of reconciliation of bills and someone has to carry the risk of non payments or fraud – usually white collar. This is usually the home network so they have to be very careful about policy management again an extra cost.

    Whilst I accept that MNOs did rip the backside out of roaming charges and it probably did need some regulation there is a precedent for calculating what those charges should be and it used for inter operator billing and its based on Long Run Incremental Costs and it would have been reasonable for the regulators to impose it here.

    As the MNOs move from high margin players, EBITDAs of 45% to around 5% in the next few years they have become very conscious of these costs. Which is why some of them who are Opex sensitive don’t like it.

    Its also very unlikely that there will be any significant spectrum (airwaves in lazy journalism speak) auctions in the next 10 years other than a few slices in the lower bands as analogue TV spectrum is cleared, and the last time I looked in to it it wasn’t that clear it would be that useful for MNOs when it came to data services.

    The MNOs have enough spectrum to last them for some time and their investors won’t like another round of Capex funding before they get some return on the 4G investment, don’t forget it isn’t just the cost of spectrum but a whole new infrastructure and transmission network upgrade. The radios 4G may only cost

  15. The Dutch experience is a case in point. First there was KPN – both fixed and mobile. Then came Vodaphone. And then in 1998/99 came 3 new entrants. They all got consolidated back to 2 players by about 2005 simply because, in a country of 15m people, there was not enough money to cover the investment in infrastructure (plus spectrum licences)

    My thoughts – 2 players can live in a country of 15m, which might prove to be a scaleable dynamic. But it does mean that spectrum auctions will not raise the kind of sums governments might wish.

    Second – it helps if you are a fixed-line provider as well. We have seen this dynamic in the UK where the mobile operators are consolidating infrastructure as fast as they can because their backhaul networks are just too costly to go it alone and there is no real fixed operator that is also in the mobile space, other than as a reseller. Even a 2 operator model in the Netherlands might fail in the future.

    Third, the threat for the future is for WIMAX and WIFI players to come in and eat the mobile operators’ lunch. This will be how BT gets back into a “mobile” space.

    Fourth, Telefonica grew massively in the 1990s and early 2000s on the back of internet investments in South America, which enabled them to hoover up O2. The last time I looked , O2 Germany was pretty marginal in terms of return on capital, but that was about 10 years ago.

    Lastly, I expect more consolidation – at least at an infrastructure level, if not at a company/legal entity level. Then how will the EU milk them?

  16. £30k per site but then there;s the cost of new antennas for the new spectrum, more space on the ground and mast, upgrading power and transmission, new switches and data bases. It could easily come to 100k in capex per site just for the radio network and there are over 10k sites per MNO. Fro memory the radio network is about 30% of the overall capex of upgrading a mobile network to a new generation.

    Which is why the main reason the UK 4G auction was delayed because the MNOs didn’t need it except for a few small areas and probably couldn’t afford it,. They were under instruction to sweat their 3G assets because of high licence fees and slow initial take-up. At the time 4G was being pushed by vendors who were seeing their equipment orders falling when the 3G roll out and upgrades were being completed.

    What we will see is greater innovation in spectrum efficiency using higher modulation schemes and other technology tricks to support increases in data usage, the main killer for MNOs. We can also expect to see a greater penetration of wifi so that the MNOs can offload data users in high demand areas and end to all you can eat data packages.

    @JamesV

    Roaming was a great money spinner with very high margins. Even without those margins MNOs will have to offer it in the same way that washing machines have to have all the features nobody uses. Its the old 1-2-1 story. They only planned to build in London and a few large cities but they quickly found that people who had no intention of going outside those areas still wanted the comfort of knowing they could and their phone would work. The same will happen with roaming, any MNO who doesn’t offer it will soon find their churn away increases significantly unless they offer a significantly cheaper services, I’m guessing here but that would probably mean in the area of 50%, than their competitors and even then I don’t see it happening.

  17. SimonF – I completed the financial section of the response from O2 Netherlands to an EU enquiry on roaming at the start of the 2000s. It was not clear to me that it was particularly costly in terms of capex to set up roaming partners – it was an exercise in creative padding, to be frank. However, the cost of running and managing the clearing houses was a hidden and no doubt very significant cost, as you point out. It was certainly the major roaming opex cost to my network operator.

  18. “increases in data usage, the main killer for MNOs”

    To put it mildly. Obviously, voice traffic doesn’t require more or faster capacity.

    “a greater penetration of wifi so that the MNOs can offload data users in high demand areas”

    Now this is interesting. The UK is doing FTTN rather than FTTH; if the densities work enough that every FTTN box can also be a high-powered wifi hotspot, that would be immense.

    (as far as I understand fibre and wifi, I’m very sceptical that the range will be enough – but I’ve never tried to find out what happens if you have an industrial wifi unit hooked up to a FTTN box, so it’d be interesting to see otherwise)

  19. @Diogenes

    On your first point the teledensity of a country plays a large part in how many MNOs it can support. Places like HK can get away with more because of the relatively fewer site needed to cover the population target. In rural countries there is a case for a monopoly infrastructure provider offering wholesale mobile to a number of retail players, but I’m not sure if it could be made to work and provide the services and pricing that competition brings.

    The Netherlands was a special case though. KPN initially built their 2G network based on and 8W car mobile and so built fewer sites. When Vodaphone launched their network based on the 2W mobile they started to clean up and this got other investors interested.

    However it didn’t take KPN long to get their act together and increase their site count but because they were infilling they ended up with more sites than they would have done if they had built a 2W mobile network and so soon regained their quality reputation. Which was bad news for new entrants.

    I agree it helps to have been a fixed line operator. What most people don’t understand is that back-haul transmission is a significant part of Opex. It is also on the critical path for build and this gave the incumbents a significant advantage in the land grab that was the initial roll out. Now its important because of the constant capacity upgrades.

    I’ve done a lot of work trying to figure out WiMax business cases and I don’t see it being a big threat to LTE. In theory it should be cheaper because of the lack of mobility IPR but we found the costs of terminals was prohibitive because we couldn’t get the economies of scale you can get with LTE. If anything it is likely to replace wifi but seems to be losing that battle as well.

  20. Now this is interesting. The UK is doing FTTN rather than FTTH; if the densities work enough that every FTTN box can also be a high-powered wifi hotspot, that would be immense.

    (as far as I understand fibre and wifi, I’m very sceptical that the range will be enough – but I’ve never tried to find out what happens if you have an industrial wifi unit hooked up to a FTTN box, so it’d be interesting to see otherwise)

    Wifi wouldn’t work other than for outdoor coverage although technically its quite easy to install it in the cabinet, if there’s space.

    Some speculated that this is how BT is getting back in to the mobile business with their 4G spectrum but I haven’t seen any sign of that in reality. However the word on the street is that BT is looking to flip their 4G spectrum: http://recombu.com/digital/news/4g-auction-winners-could-sell-spectrum_M11335.html but that could be just idle rumour based on no signs of any roll out plans.

  21. To Telefonica’s credit, they have always recognised that the northern European (O2) business is a different business from the LATAM (Movistar) business and haven’t tried to run them as one, or even give them the same branding. O2 UK is clearly a profitable business – although the German business looks marginal to me – but it does look capital starved. They have just sold off their fixed broadband business to Sky because they presumably can’t afford the Capex for fibre, and have bought the bare minimum spectrum for LTE that they could get away with. The deal they have done to get BT to provide the data backend for their mobile network makes me wonder if they are going to do more that way. As SimonF mentions, BT did buy that 4G spectrum, and if you built a single network with BT and O2s spectrum holdings, you would have enough. This makes me wonder if we are going to see more JVs between O2 and BT, and possibly if BT is going to buy back at least some of the equity. O2 certainly aren’t going to have much fun trying to raise capital from their Spanish owners.

  22. The EU has been regulating roaming charges within the EU for two or three years now. Roaming charges in which the roaming customer is travelling within the EU and calling within the EU have become much cheaper, although they are still much more expensive than calling domestically. On the other hand, try making a roaming call which is not regulated by the EU. Roam outside the EU or make a call to somewhere outside the EU while roaming within the EU, and the charges you pay are more horrendous than they were before. (Accidently call someone for one second, and you will be charged three pounds or more. Accidentally leave roaming data switched on for an hour and you might be charged hundreds of pounds). The networks responded to the cut in-EU roaming charges by increasing non-regulated out-EU roaming charges to compensate. I am not sure that this is terribly wise of them – I leave my phone permanently in flight mode when outside the EU because the charges are simply too horrendous, so there is now no revenue from me at all except when I do something accidentally. Presumably, though, this is an attempt to maintain overall levels of revenue for those customers who travel frequently on business, cannot survive without their phone working, and whose company is footing the bill. I don’t mind paying some premium for roaming, but this is just taking the piss.

  23. from my memories, roaming was just a marginal activity but it had a disproportionate level of profitability. cap it in one place and the remainder has to be recouped elsewhere. One of my earlier posts alluded to this kind of “re-balancing” of tariffs.

    An intriguing point. In the past, techno upgrades meant going to equipment suppliers – such as Ericsson, hiss hiss – and you would get EDGE etc. I think the cost envelope has changed so it is now the additional cost of backhaul that matters more. So Ericsson and Huawei might have less bargaining power than they suppose…and the pressure will be strongly for consolidation within the EU telecoms provider industry.

    Thanks for some interesting discussion points.

    And Tim’s original post was …tosh

  24. Diogenes,

    I haven’t seen anything recently on the revenues generated from roaming but given the amount that MNOs spend on sites near points of entry to try to catch incoming roamers first I’d be surprised if it was marginal.

  25. given the margins…MNOs should have been harvesting inbound roamers at the expense of domestic customers…and yes I know about targetting the ramps of incoming planes….

    hence my first comment about tariff rebalancing.

    It was a model that was not realistic in the long-term -min this case 15 years or so. It remains to be seen whether Voda can survive without a fixed-line base in an age of growing datas usage. Or what compromises they make. Still, much of the planet is not on facebook or youtube as yet.

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