New operators set to ring changes in mobile phone sector

 

3 and Eircom's entry will intensify competition, writes Jamie Smyth, Technology Reporter

Four years of stagnation and high prices in the mobile phone industry may finally come to an end following the entry of two new players to the Irish market.

The eagerly anticipated launch of the fourth mobile phone operator 3, which is owned by the Hong Kong conglomerate Hutchison Whampoa, adds a dynamic new competitor to a market that for so long has been dominated by Vodafone and O2.

Meanwhile, Eircom's re-entry into the mobile industry through its €420 million purchase of Meteor will give the third operator more financial clout to grow its users.

"These two firms will certainly increase the competitive climate in Ireland," says Enda Hardiman, director of the consultancy Hardiman Telecommunications.

"3 is a big global player and Eircom will not settle for just 10 per cent market share, so the duopoly that has existed up until now in the market should be upset."

3 has already accumulated eight million mobile customers across Europe and Asia in just two years by offering an attractive mix of low tariffs and innovative data services.

The firm has bet tens of billions of euro on third-generation technology (3G), a new type of network technology that transmits data at broadband speeds.

This enables the firm to offer its customers video clips and multimedia services as well as the staple voice calls and texts that have proved so popular with Irish consumers.

The presence of 3, currently the world leader in 3G technology, could force O2 and Meteor to re-evaluate their own strategy.

Both firms have so far balked at launching new 3G services due to the high cost of rolling out networks, but this will become a risky strategy if 3 can manage to gain a foothold in the market over the next year.

Eircom, Meteor's new owner, will shortly have to decide if it plans to acquire a 3G licence from the State at a cost of €114 million over 15 years.

The cost of building out a new 3G network will be closer to €300 million, highlighting that getting into the mobile industry will be a hugely expensive exercise for Eircom.

However, the dominant fixed-line telecoms firm will approach the mobile market with significantly more advantages than Meteor, which initially struggled to make any impact in the Republic following its launch in 2001.

"Eircom has an unrivalled base of 1.4 million customers and a huge understanding of the wider telecoms market," says David McRedmond, Eircom's commercial director.

"It also has the financial and industry strength necessary to grow the company and is well positioned on fixed-line and mobile convergence."

Fixed to mobile convergence is the latest buzzword in the telecom industry, although it is not yet a proven technology. British Telecom recently demonstrated its first dual-mode fixed and mobile handset called the Bluephone in Britain. This handset uses Wi-Fi technology to connect to a low-cost fixed-line connection in the home or office and switches to a higher cost mobile network when a customer is on the move.

"The whole concept of convergence is something all the operators in Europe are focusing on," says Neil Clifford, analyst with Goodbody Stockbrokers, Eircom's broker.

"It's probably too early to say yet how popular these services will be with consumers but if they take off for BT this year, Eircom won't be left behind."

Yet most industry analysts believe new technologies such as 3G and fixed to mobile convergence will not become true mass market products until at least 2007. In the meantime, Irish consumers will benefit from much better prices for voice and texts.

Eircom's management predicted its purchase of Meteor would drive down mobile prices by 20 per cent over the next three years. Yet only a day later, 3 launched a range of tariffs at the bill pay sector that undercut industry leader Vodafone, suggesting that the fourth network operator will have a much more dramatic impact on tariffs.

3's initial concentration on the upper end of the bill pay sector is very good news for consumers as this is the particular market segment where prices have remained stubbornly high, according to recent surveys by the regulator ComReg.

These surveys also highlight why the race to enter Ireland's mobile market has gathered pace in recent months. Even though 84 per cent of the public now own a mobile, and some own two or three handsets, revenue growth remains strong in the market and the two big players Vodafone and O2 have enjoyed bumper profits.

Mobile industry revenues grew 17 per cent to €482 million in the first quarter of 2005, compared to the same period a year earlier and they will most likely reach the €2 billion level in 2005.

Industry figures also show that Irish consumers continue to spend significantly more than other Europeans on mobile services (€48 per month).

But with Vodafone and O2 still sharing 90 per cent of the market, Eircom and 3 must have a very strong chance of winning market share from both companies.

John Gunnigan, an associate with the consultancy DotEcon, predicts that O2 could come under pressure as it is a smaller operator that has not yet launched 3G services.

But Vodafone will also have to respond to the challenge posed by two new aggressive mobile operators in the Irish market, which is good news for consumers.

Perhaps the only ray of sunlight on the horizon for Vodafone and O2 is that enhanced competition will strengthen their case to block the regulator's attempts to open their networks to so-called "virtual operators".

Both firms are appealing ComReg's ruling to force them to open their networks to firms that want to offer mobile services.

This regulatory battle is now likely to become much less important if 3 and Eircom can deliver on their promises made to consumers this week.

The Christmas selling season should offer an early indication if they are likely to be successful.