Global Insight Perspective | |
Significance | Drillisch, the German MVNO, plans to engineer a merger with four other mobile services providers. |
Implications | The fusion would create Germany's third largest mobile group, with a scope to rival German mobile market leaders, T-Mobile Germany and Vodafone Germany. |
Outlook | The German mobile market is dominated by T-Mobile Germany and Vodafone Germany, but the MVNO market, which is one of the most advanced in Europe, is extremely fragmented. The move would trigger consolidation in the sector. |
German telecoms services provider Drillisch is considering a merger with four rivals to create a group to rival market leaders, T-Mobile Germany and Vodafone Germany, according to Paschalis Choulidis, Drillisch CEO (Chief Executive Officer), who was interviewed by the German daily, Frankfurter Allgemeine Sonntagszeitung. Drillisch is currently in talks with its bigger rival, Mobilcom, which could lead to Mobilcom's takeover of Drillisch. The merger would create a group with 25 million customers and 5 billion euro (US$6.3 billion) in annual sales. The aim is to merge five leading independent mobile services providers, debitel, Mobilcom, Talkline, Phonehouse and Drillisch. According to Choulidis, the merger is feasible as Drillisch and Mobilcom have already expressed interest in joining forces. The next step, a merger with debitel and Talkline could be facilitated by the fact that the two companies are owned by private equity funds, rather than strategic investors, which would make the process easier if the valuation is attractive.
Outlook and Implications
Competitive Mobile Landscape: There are four network operators in the German mobile market: E-Plus, O2 Germany, T-Mobile Deutschland and Vodafone Germany. T-Mobile Deutschland and Vodafone Germany are the sector leaders, each holding nearly 40% of the market. At the end of September this year, T-Mobile had 30 million customers in Germany, and Vodafone had a total of 29 million. Their smaller rivals, E-Plus and O2 Germany, controlled 13.0% and 11.5% of the market respectively. The German mobile market has one of Europe's most advanced MVNO sectors. A number of established mobile players have launched low-cost pre-paid brands: these include E-Plus's Simyo and its niche brand—targeted at the Turkish community in Germany—Debitel, Tchibo and the latest easyMobile. The emergence of MVNOs has boosted competition in the German mobile market, bringing down the cost of mobile calls and increasing the level of fixed-to-mobile substitution. The country's mobile operators expect to tap into the value-added mobile data services' revenue streams, and have already started to line up portfolios of data-centric multimedia services, including mobile music downloads, gaming and TV streaming.
Customer Expansion to Offset Discount Pricing: The proliferation of MVNOs following the introduction of mobile number portability (MNP) on 1 November 2002 has boosted competition on the fast-paced German mobile market. Effectively, Germany has one of Europe's leading MVNO markets. The leading MVNOs include: MobilCom; Sweden-based Tele2, which provides MVNO services jointly with Viag Interkom; Tchibo Mobilfunk, backed by O2 Germany; Debitel; and the Talkline and easyMobile brands (operated by Denmark's TDC). The mobile operators and service providers have been lining up an array of attractive offerings to win customers. The most recent marketing initiative was launched by O2 Germany, the German unit of Spanish telecoms group Telefónica, through its partnership with internet service provider AOL Germany. The country's number-three cellco will offer discounts to AOL's customers in Germany in an attempt to boost growth of its subscriber base before the end of the year. O2 Germany offers AOL customers a flat rate of 0.19 euro per minute for mobile calls to any network, with the minimum spend capped at 4.99 euro per month; the contract duration is unlimited. The package includes optional internet access of 5 hours per month for an additional 4.99 euro. The joint partnership with AOL Germany has enabled O2 to gain access to a target group of more than 2.5 million potential customers in Germany. AOL's access business in Germany was recently acquired by Telecom Italia from the U.S. media group Time Warner, which created Germany's second largest internet group behind incumbent Deutsche Telekom's T-Online (see Europe: 18 September 2006: Telecom Italia Acquires AOL Germany for US$856 mil.). The new offering will also enable O2 Germany to compete more effectively with discount mobile service providers, including TDC's easyMobile and Drillisch, which already offer mobile calls at 0.14 euro per minute. Effectively, the move will also enable O2 Germany to migrate some subscribers from pre-paid to contract subscriptions. Discount pricing has led to a decline in ARPU (average revenue per user) and mobile operators aim to win new customers to boost growth.