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FreeMove mounts its challenge to Vodafone

European telco alliance moves forward under new banner

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Few things move as slowly as telcos or committees, so the anti-Vodafone alliance of T-Mobile, TIM, Orange and Telefónica was never expected to make an impact overnight. However, a year after its formation, the group has indulged in a noisy relaunch that is still short on substance - although, 12 months on, it does at least have a name, FreeMove.

The incumbent cellcos of Germany, Italy, France and Spain say that their combined forces will offer their customers - particularly enterprise travellers - consistent services, tariffs and roaming when using a partner network abroad. This will bring them somewhat closer to achieving the global footprint that is Vodafone's ambition.

The second benefit will be to pool their negotiating power with the handset makers in order to gain discounts on a scale with those enjoyed by Vodafone. The companies have just started buying as a combined entity and said they had purchased 6m phones from Siemens and Motorola, for 10 per cent less cost than they would have commanded individually. This will give them greater flexibility to be price competitive against Vodafone.

The fight against Vodafone

Marco de Benedetti, CEO of Telecom Italia and current chairman of FreeMove, said that cross-border roaming was an increasingly lucrative market and that, last year, the four partners recorded a combined 900m minutes of roaming calls across Europe, a figure expected to rise by 10 per cent a year in 2004-2007 as customers' data needs rose and as they found it easier to use roaming services.

The four operators have 170m European customers between them although the clear focus of FreeMove is on increasing enterprise business, a sector where Vodafone has had the greatest success in Europe because of its ability to offer unified, international schemes across the region.

Of course, despite their impressive customer numbers, the Gang of Four still has several disadvantages against Vodafone. One is that the deal only covers the countries where they have networks, so they really need further partners - KPN of the Netherlands and TeliaSonera of Sweden and Finland springing to mind - to offer the complete service they promise.

Key to expansion of the service will be the inclusion of T-Mobile USA, which is expected within two months. The group will use that as the basis to expand their brand to North and South America (mainly through Telefónica's operations there) and a global base of 230m customers.

Another disadvantage, and more destructive in the long term, these are four rivals seeking to work together under one potentially confusing brand. The likelihood of such a body having the streamlined decision making process and agility of a single entity such as Vodafone is limited. Already, last summer, T-Mobile and Orange fell out over who would control the business and collect the money in the UK, where both have networks.

What the alliance will do for the participants is to ensure their survival as the European mobile market shakes down to a handful of players over the coming few years. Common wisdom is that, come 2006, most countries will have just Vodafone and their incumbent operator surviving, with a couple of larger bases such as the UK and Germany supporting three players, and the others swallowed up by larger companies.

But the incumbent operators are not entirely secure either. They may, for the time being at least, be protected in their homelands by the parentage of the wired telco, but only through alliances like this, or full scale mergers, can they hope to play effectively outside their home country.

The StarMap Alliance

This fact was also recognised last October by MMO2, which formed its own European grouping, the StarMap Mobile Alliance, with Amena of Spain, One of Austria, Hungary's Pannon GSM, Sunrise of Switzerland, Norway's Telenor Mobile and Italy's Wind.

There was much talk late last year that NTT DoCoMo or KPN would join the group - and even buy MMO2 - and would seek to base its strategy on DoCoMo's i-Mode content platform, which competes with Vodafone Live! This would have given the operators a common brand and a differentiator, particularly in the consumer market, but so far, despite rumours that DoCoMo is seeking to get out of its stake in Hutchison 3, nothing has materialised.

This leaves StarMap in the uncomfortable position of being a band of also-rans, with all the problems of in-fighting and conflicting agendas of FreeMove, but without the purchasing clout. However, StarMap has been quicker to roll out actual services, including combined photomessaging. It focuses on roaming, cross-marketing and developing mobile services and covers a base of 40m subscribers in Europe - less than half Vodafone's European base of 90m.

Alliances like the MMO2 group are not a sign of strength but of small players huddling together for protection. Roaming, unified billing and so on are becoming basics demanded by all cellphone users, not added value features that can be used to drive up ARPU. And unified brands take time and money to establish - Vodafone has not spent the bulk of its marketing budget on creating a single brand for nothing. It knows the power of a single, simple message and product set.

FreeMove will be run as a non-profit subsidiary under Dutch law that will be managed equally by the four members' CEOs. De Benedetti will head the supervisory board for the next six months while Elis Bontempelli, CEO of TIM's Brazilian unit, will chair the management board.

© 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.

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