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[Vodafone AirTouch] [BT Cellnet] [Orange] [One2One] [Virgin Mobile]
Vodafone AirTouch is the largest of the 4 UK mobile operators and currently (December 1999) has 8m customers, with just over 1m added in the last quarter. It is also the only operator making substantial earnings. It is also the 3rd largest in Europe with 12.7m customers (October 1999). In mid 1999 Vodaphone completed one of the world largest takeovers when it acquired the US AirTouch for £38bn. Apparently the details were finalised by a mobile call across the Atlantic. In late 1999 Vodafone made a hostile bid for Mannesmann (see below).
Before the acquisition of AirTouch, Vodafone had world wide interests, though non in the US. They included Egypt, South Africa, Uganda, France, Germany, Greece, Malta, Netherlands, Sweden, Australia, Fiji, and New Zealand.
Strategy: Protect market-leading position, especially corporate customers; Use pre-pay schemes to reach consumer market; Diversify abroad, particularly Europe.
Like other mobile operators, Vodafone plans to move into value added services, especially data services using the new WAP phones. These include news, entertainment, and banking. Vodafone has stated that it is prepared to invest £1.2bn in the next generation of UMTS phones due for launch in 2001.
In November 1999 Vodafone AirTouch launched a huge £82bn* hostile bid for the German Mannesmann company which owns Orange, one of the other UK mobile operators. Under the offer, Mannesmann shareholders would be offered 47.2%^ of the shares of the merged company. Mannesmann claims the price undervalues the company by a third and that the takeover would result in £65bn goodwill write-downs over 20 years. Further, Vodafone would have to spend a £35bn on cash payments to buy out shareholders who refused to tender their shares for Vodafone stock, and that US shareholders would be stung for a huge tax liability. Mannesmann has been taking full page ads in the UK broadsheets to highlight these negative aspects of the bid and the what it sees as the real cost should the takeover proceed. Vodaphone refutes these assertions saying that the cash charges would not effect cash flow and that most US shareholders are tax exempt funds. Nether-the-less it will be expensive and it was reported that Vodafone was preparing to borrow up to $34bn to finance the deal. Advisory fees alone are expected to be £400m, the largest ever in the UK for a bid launch.
*With Vodafone looking increasingly the likely winner its share price
has risen sharply such that the bid is now worth £100bn.
^Later Vodafone raised its offer to give Mannesmann shareholders 49% of the
new merged company.
This looks to be an interesting battle especially as it is being conducted in Germany where the rules for takeover battles are much more flexible than the UK. In fact it got off to a controversial start when Tony Blair, the UK's prime minister, expressed concern that the German government was trying to block the bid. Both parties continue to wage war through the media with statements and counter statements by the day. Even both chief executives have engaged in personal attacks and innuendoes about each other. Should Vodafone succeed it will create the world's biggest telecommunications group with 40m customers in Europe, US and Japan, and a market capitalisation of £150bn. The EC confirmed that it would not decide whether to launch a monopoly investigation until 10 days after the February 7 bid deadline. If it does, then the Commissioners have 4 months to conduct the investigation.
In January 2000 Vodafone announced its global Internet plans in partnership with a number of big IT companies. They included Psion, Palm Computing, Nokia, Ericsson, IBM, Sun Microsystems, Travelocity.com/Sabre and Charles Schwab. See value added service providers. Mannesmann's is also about to announce its Internet plans and the potential for value added services and e-commerce is likely to be a decisive factor in the bid war.
BT Cellnet is the 2nd largest player in the UK with 7m customers (December 1999), with just over £1m added in the last quarter. Originally a joint venture between BT and Securicor in 1983, BT offered in August 1999, £3.15bn for Securicor's 40% share. Securicor had invested just £4m in the venture. However, some analysts thought that the offer was too little and others suggested that had BT threatened to bid for a 3rd generation license on its own, thus freezing out Securicor from future growth.
Strategy: Maintain pre-pay market share; Boost post-pay, higher usage customers; Develop Friends and Family scheme to boost loyalty and usage.
In July 1999 BT further cemented its Concert alliance with AT&T when the two companies agreed to set up a new alliance called Advance with the aim of providing uniform mobile services for multi-national customers. It will include world-wide contracts, standard rates, and globalised billing systems. Some analysts suggest this may be a forerunner to the companies spinning off their mobile operations into a separate company. Others see a full merger as the outcome. The first stage will be to integrate voice networks in London and New York. All told, the companies have between them 41m mobile customers in 17 countries.
In September 1999, Cellnet purchased the DX Communications chain of 140 mobile phone shops for £42m..
In October 1999, BT announced a joint BT - Microsoft trial involving 1,000 BT corporate mobile users. The trial will test the ability to send and receive e-mail as well as access calendaring, addresses and personalised web content through Microsoft's Exchange software. Then in November 1999 they announced Project Nomad to roll out the service to business customers from mid 2000.
BT Cellnet aims to almost double its customer base to 12m by 2003, taking 30% of the then estimated 40m mobile consumers in the UK (66% of the population). Profits after tax in the year to March 2001 are predicted at £300m. Data users are expected to come an increasing source of revenue. This compares with £31m after tax profits in the 6 months to September 1999.
Rumours were circulating in January 2000 that BT Cellnet was about to announce major WAP based e-commerce initiatives. Apparently it had told Nokia and Siemens to ship thousands of WAP phones to the UK. If this is true then BT Cellnet will be the first to the UK market.
With nearly 5m customers (December 1999), Orange is the UK's 3rd largest player and is the faster growing operator with a net customer additions of 1.4m customers in the last quarter of 1999, most of whom opted for the pre-pay scheme. In November of 1999 it was acquired by the Germany's Mannesmann for £20bn. Should the Vodafone AirTouch acquisition of Mannesmann succeed (see Vodafone above) then it is likely that Vodafone will have to divest Orange. France Telecomm has already said it's interested in buying the company.
Orange was formed in the 1994 when Hutchison Whampoa and British Aerospace invested £700m to re-launch the company. Earlier Hutchison had developed a system called Rabbit where customers could make but not receive calls. This system was written off for £250m, the management sacked and Orange launched. Hutchison's share was then 49%. Now it has a 10% share of Mannesmann.
As with all mobile operators, the early years are ones of significant capital and marketing expenditure, with no dividend payments to shareholders. In August 1999 it announced first-half pre-tax losses of £35m. However, capital growth can be significant, being based on size of customer base and expected future revenues, especially through value added data services. The Mannesmann bid values each Orange customer at over £4,000.
Strategy: Focus on post-pay customers; Develop new interactive services on its GSM system; Continue to build brand in the UK and to expand overseas
Orange hopes to launch a service in the rest of Europe by acquiring large amounts of capacity from other operators rather than build its own network which might be better reserved for the next third generation of mobile phones.
In October 1999, Orange announced a £20m promotional blitz to raise its market share. Reduced peak calling rates for pre-pay customers were announced with the aim of attracting many of the predicted 3.5m sales in the run up to Christmas. Orange is also to introduce a wide range of multi-media value added services and in 2000 a video mobile phone running over an enhanced network and voice operated functionality.
One2One is the smaller of the established operators with just over 4m customers (December 1999), including the addition of 900,000 in the last quarter. It is owned by the German company Deutsche Telekom who paid £8.4bn for One2One in August 1999 with acquired debts of £1.5bn (net cost £6.9bn) after a contest against Mannesman. Prior to that it was jointly owned by Cable and Wireless and MediaOne of the US - they had announced in March 1999 that the company was up for sale.
One2One pioneered the pre-pay market which has been copied by all the other operators and which has done so much to accelerate the take-up of mobile phones in the UK.
In March 1999, in an innovative deal, One2One outsourced its masts to Castle Transmission International (CTI) who had also bought the BBC radio and TV transmission system. CTI will manage the network for 10 years at no charge to One2One but in return will be able to rent-out the facilities to other operators. This will be welcome by environmentalists who are concerned at the proliferation of masts.
One2One lost money when customers enthusiastically embraced a PersonalCall tariff which offered unlimited free off-peak calls at weekends and in the evening. Stories abound about some subscribers using the phone as a baby alarm by keeping the line open for many hours. However, this did not deter it from introducing (to new customers), free lunch time calls in the 9 month period to June 1999.
In the year to 31 March 1999, One2One made an operating loss of £52m on sales of £781m. 40% of customers are on pre-pay mobile contracts. Investment to date has been £1.2bn with another £600m planned. The network is well regarded, having been built for high capacity. Under Deutsche Telekom, One2One will move more into the business and data markets - currently most of its customers are residential.
Strategy: Boost pre-pay by having less differentiated tariffs; Attract higher value contract customers; Invest in additional network expansion and capacity.
In April 1999, in a bid to gain lost ground, One2One slashed its call charges making some calls cheaper than BT's fixed line calls. Available only to pre-pay customers they will have to pay a 50p fixed daily charge.
Virgin Mobile is the most recent operator, launching in November 1999 and gaining 120,000 customers in the first 7 weeks. It is a joint operation between Virgin and One2One. Virgin Mobile is offering consumers cheaper calls, no line rental and simpler pricing. It will not however be subsidising the handsets, selling them for between £70 and £380. Virgin Mobile is responsible for its own customer billing and service. Analyst put the initial investment at £100m over 2 years including £20m for advertising. It aims to have 500,000 customers by the end of 2000. Virgin stated that it was particularly keen to enter the e-commerce market.
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