Feeds

Could DoCoMo be the saviour of MMO2?

Unlikely, with investors running scared

  • alert
  • submit to reddit

Gartner critical capabilities for enterprise endpoint backup

Analysis As new speculation mounted over Vodafone's next move, following its failure to acquire AT&T Wireless, another takeover saga began with the rejection of a bid for the UK's MMO2 from the Netherlands' KPN.

Vodafone CEO Arun Sarin, under pressure to give investors some clear signals on his acquisition strategy, was playing it cautious as regards the US, ruling out a bid for Nextel or Sprint PCS.

However, he dropped enough hints to create his usual mischief, refusing to exclude the possibility of a bid for Verizon Communications or to buy out their joint venture, Verizon Wireless - although he said this would be on friendly terms. He is particularly keen to buy Verizon out of Vodafone Italy.

He also said that no bid for Vivendi - which Vodafone is eyeing because it wants full control of the SFR French cellco subsidiary - is imminent, which only served to spark rumors at the 3GSM show that it was still on the cards, despite recent comments by Vivendi's CEO Jean-Rene Fourtou that the company's future lies in telecoms.

Sarin also said that Vodafone was interested in larger networks in Russia and America but was unlikely to invest heavily in China because it could not get a dominant position, nor in Latin America unless it could gain a market leading company in Brazil or Mexico, the largest markets.

Fears of new telecoms bubble

Even in this more watchful mood, Sarin hardly reassured nervous investors that Vodafone would not set off on the acquisition trail soon and this, combined with the KPN-MMO2 story, is arousing fears of a shift back towards the high spending telcos of the late 1990s, with rebounding financial fortunes, reduced debt and the undoubted need for consolidation in Europe and the US fuelling a potentially expensive and value stripping round of takeover battles.

The wariness of telecoms shareholders, especially in Europe, was illustrated by the strong investor support for KPN's decision not to increase its €13bn-€ 14bn bid for MMO2, which the UK com-pany rejected last week, and not to pursue a hostile bid. It had called for a price of about 125 pence per share, rather than KPN's 108 pence, which was an 18 per cent premium over the UK company's closing price last Friday, but only a penny above MMO2's price on Monday, when its shares leapt to their all-time high of 107 pence on the back of takeover hopes. Analysts believe KPN could bid 130 pence and still get value from MMO2.

Who should buy MMO2?
The failed bid has put MMO2 on the sales table however, and has even sparked speculation that KPN itself would be acquired, possibly by France Telecom, with investors in the Dutch company seeming friendly to the deal. As owner of Orange, such a deal would put the French telco in a strong position to line up with Deutsche Telekom, owner of T-Mobile, as the main challengers in Europe to Vodafone. This market cannot support all its operators, and it is likely that, by 2007, most countries will have just two or three players: Vodafone, the national incumbent, and possibly one other international operator. The critical need, then, is for the major operators to gain international scope.

This is why MMO2 will almost certainly be acquired - though not necessarily by KPN - in the coming year. Contrary to the drive for internationalisation, the company has, apart from its troubled German arm, largely retreated to its home territory, one where, of course, fellow UK operator Vodafone is particularly strong. NTT DoCoMo, which in November was widely rumoured to be preparing a bid for MMO2, is now in the frame again, a deal that could make sense for both sides.

Keiji Tachikawa, president of DoCoMo, said the group would be interested if MMO2 agreed to adopt i-mode, its mobile internet service. "We are prepared to negotiate with any operator which will do i-mode," Mr Tachikawa said - though the Japanese operator would have to consult 3 UK, its current UK partner, which seems to be backtracking on launching i-Mode.

DoCoMo's strategy

The Japanese carrier has sent out highly mixed signals recently. Its shareholders are very nervous of a return to its globalisation policy, which in the late 1990s led it to take minority stakes in midrange operators in Europe and the US, a half-hearted approach that cost it dearly. Its decision not to bid for AT&T Wireless, in which it holds more than 16 per cent, seemed to show the giant drawing in its horns and focusing on its home market. But now it has raised the possibility of buying a similarly sized stake in the merged Cingular Wireless-AT&T Wireless company, and is once again eyeing MMO2.

Its domestic issues aside, MMO2 would undoubtedly be a better buy than its minority stake in Hutchison 3G, although only if it then uses its market weight to put the UK operator into a coherent international network - otherwise it will be saddled with a third or fourth placed player confined to just the UK and Ireland. Its pan-European ambitions would probably rest on its i-Mode multimedia service.

DoCoMo's strategy for making i-Mode - phenomenally successful in Japan but slow to make an impact elsewhere - a true contender to Vodafone Live! has been to sign up mid-tier carriers, on the basis that they are less able to invest in their own data services. I-Mode is now available in eight countries, and has 2m subscribers outside Japan, compared to 40m inside it. Outside that country, it is overshadowed by the newer Vodafone Live! which is also being licensed to non-Vodafone carriers such as, most recently, Swisscom Mobile and now has 3m users.

Other i-Mode licensees are KG Telecom in Taiwan; KPN in the Netherlands and its German and Belgian subsidiaries E-Plus and BASE; Wind in Italy, Bouygues in France and Telefónica in Spain (which does not use the i-Mode brand). Greek operator Cosmote aims to have i-Mode running in time for the Athens 2004 Olympic Games.

MMO2's allies

Some of these carriers are also likely to join MMO2's Mobile Alliance of smaller operators, now rechristened Starmap, which seeks to gain buying and negotiating power with the handset makers, roaming agreements and, through integrating services, a wider range of offerings for the lucrative business traveller market. The members are MMO2's UK, German and Irish divisions together with Amena of Spain, One in Austria, Pannon GSM of Hungary, Switzerland's Sunrise, Telenor Mobil Norway and Wind of Italy.

The best logic behind an MMO2/DoCoMo tie-up, that it would bring together the two companies' two networks of mid-tier operators - the only overlapping member to date being Wind - and potentially increase i-Mode's leverage. And success will be a numbers game as the European mobile market heads for consolidation, with smaller players having to band together to stand a chance of surviving in a world dominated by Vodafone and by the 'Gang of Four' grouping of the other major operators, T-Mobile, Telefónica, TIM and Orange.

An i-Mode alliance with MMO2 as its fully owned hub would be a strong move for DoCoMo and a more strategic motivation for taking the UK operator than European bidders have. For them, MMO2 brings a relatively small number of subscribers - 20.1m compared to 130m for Vodafone and 61m for T-Mobile - and a hard to maintain position in one of the most pressurised markets, the UK.

For an operator not already established in the UK, such as KPN, the main attraction is therefore the German arm, which the Dutch company could merge with its existing E-Plus German outfit to create a far more viable player in that country.

Other rumoured bidders include Hutchison, which could certainly benefit from a boost for its troubled 3G-only UK operation 3; T-Mobile itself - though this seems less likely given the strength of that company in both the UK and Germany; and an outside chance of MMO2's original parent, BT, making a bid to boost its recent re-entry into the cellular market.

© Copyright 2004 Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

Secure remote control for conventional and virtual desktops

More from The Register

next story
6 Obvious Reasons Why Facebook Will Ban This Article (Thank God)
Clampdown on clickbait ... and El Reg is OK with this
So, Apple won't sell cheap kit? Prepare the iOS garden wall WRECKING BALL
It can throw the low cost race if it looks to the cloud
EE accused of silencing customer gripes on social media pages
Hello. HELLO. Can EVERYTHING EVERYWHERE HEAR ME?!
Time Warner Cable customers SQUEAL as US network goes offline
A rude awakening: North Americans greeted with outage drama
Shoot-em-up: Sony Online Entertainment hit by 'large scale DDoS attack'
Games disrupted as firm struggles to control network
BT customers face broadband and landline price hikes
Poor punters won't be affected, telecoms giant claims
Netflix swallows yet another bitter pill, inks peering deal with TWC
Net neutrality crusader once again pays up for priority access
prev story

Whitepapers

Best practices for enterprise data
Discussing how technology providers have innovated in order to solve new challenges, creating a new framework for enterprise data.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Advanced data protection for your virtualized environments
Find a natural fit for optimizing protection for the often resource-constrained data protection process found in virtual environments.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
High Performance for All
While HPC is not new, it has traditionally been seen as a specialist area – is it now geared up to meet more mainstream requirements?