DUBLIN, Ireland-Utility companies across Europe are entering the mobile communications business, hoping to simultaneously grab a slice of an extremely lucrative market and diversify their operations. But analysts are undecided on whether the companies have the requisite technical expertise or resources to effectively compete with established mobile operators.
The process of mobile telecommunications liberalization created a raft of new companies that have taken market share by building their own networks or operating as either service providers that resell existing network packages or as virtual network operators (VNOs) that buy airtime in bulk and re-package it.
So far, competition has come from new or established communications businesses. But now energy companies such as PowerGen, Centrica and Transco in the United Kingdom are following Energis (formed by the British electricity provider National Grid), Scottish Power and Italian power group Acea by developing communications services.
While the early emphasis was on fixed-line services, mobile services are a logical extension. Transco has formed a joint venture with U.S. cellular infrastructure company SpectraSite; Centrica plans to launch mobile services by September as a service provider; and PowerGen will follow suit later this year. Acea partnered with Telefonica to jointly bid for 3G licenses in Italy.
The emergence of new networks and VNOs presents both a challenge and a commercial opportunity to the existing networks, according to Phil Kendall, senior industry analyst with U.K.-based Strategy Analytics. “The networks have mixed opinions about VNOs, but however they might feel, it is surely better to sell spare capacity than leave it unused,” he said.
The most ambitious move was made by Transco, which already leases 700 mobile phone towers to BT Cellnet, Orange and Vodafone. The company announced a 260 million (US$410 million) joint venture with SpectraSite and also has a private, regional two-way radio network that could, with substantial investment, form part of a backbone network.
PowerGen is confident of market success. Gareth Wynne, head of media relations, explained that its partner has already done a lot of development work on multi-utility billing systems and expects consumers to take advantage of bundled services. “The average U.K. household spends more than 1,000 (US$1,600) a year on utilities and being able to offer a range of utility services on one bill is clearly attractive.”
According to Kendall, the move from utilities to mobile services is entirely logical, and he expects the existing operators to lose customers.
“The utilities have a large customer base, and in most cases, an established brand name. If they can acquire the expertise, they will attract new and existing users,” Kendall said.
Another leading U.K.-based utilities analyst described the United Kingdom as a European test ground for utility communications ventures, but described many announcements as a case of utilities jumping on the bandwagon. “To succeed in mobile telecommunications, you need a brand, a product portfolio and a skill set, and it would be fair to say that these companies are lacking in every area,” he said.
Resources are a crucial consideration. Incumbent operators with deep pockets, such as Deutsche Telekom, are eying mobile acquisitions in overseas markets, and few utility companies have the financial muscle to compete with operators with market capitalizations in the hundreds of billions.
“I doubt the utilities will have any impact on the mobile market. The cellular industry is a long-term business played with high stakes, and with their market valuations, it is hard to see how the utilities could acquire the necessary skills,” suggested Merrill Lynch Analyst Alex Paterson.
Eddie Murphy of Analysis thinks this is a harsh assessment. “The utilities own plenty of potential mast locations, have extensive knowledge of billing systems and money to spend. They would need to recruit skills, but they are in as good a position as any newcomer to do so,” he said.
