Does the level of competition in a market enhance or devalue mobile and fixed network assets? It is a hard question to answer in every instance. But it might be fair to say that the strategic value of both fixed and mobile asset ownership is higher in Western Europe than in the United States, for several reasons.
Sheer geography plays a role. A mobile operator can acquire a meaningful fixed network footprint far more affordably in any single European country than is possible in the U.S. market, where AT&T, Verizon and CenturyLink not only are unwilling to sell their own assets, but those providers actually own fixed network access assets that reach perhaps 85 percent of all U.S. locations.
Even if some other contestants, including Dish Network, DirecTV, Sprint and T-Mobile US might wish they did own fixed network “local access” assets, they could not buy them. And even if one of the big three fixed network providers was willing to sell fixed assets, none of these firms could afford to buy them.
Sometimes intense competition can lead to a devalued estimation of the value of investing in facilities; in other cases perceived value can be heightened. U.S. cable operators, after trying for decades to figure out a way to enter the U.S. mobile market, buying spectrum and then disposing of it, having concluded the present market is so competitive it would not make sense to build networks to use that spectrum. In Western Europe, where competition in both mobile and fixed segments arguably is tougher than in the United States, mobile operators are investing in fixed assets, while cable operators are investing in mobile network assets. You might position those moves as offensive in nature, designed to capture additional revenue sources. But one might also describe the moves as partly defensive in nature, intended to protect existing revenue streams. In other words, service providers fundamentally face markets where the long term competitive dynamics mean each incumbent provider will have potentially fewer customers than it has in the past.
As typically is the case, the solution is to sell more products to a smaller base of customers. And in a growing number of cases, that means cable TV operators, having added voice and high speed access on their fixed networks, now are finding the next appealing revenue sources come from offering mobile services. Likewise, mobile service providers see fixed networks as driving revenues from video entertainment, fixed voice and fixed high speed access, at a time when they face growing competition on the mobile front.
Vodafone’s recent moves to acquire cable operations Kabel Deutschland and Ono in Spain provide an example. Why would a largely-mobile service provider want to buy cable TV assets? Simply, revenue growth is negative in many of Vodafone’s core mobile markets. Under those circumstances, revenue growth has to come from new markets. In part, that means growing out of region, in the mobile segment. But Vodafone now also wants to grow revenues by adding new lines of business, which is what the new cable TV assets will do.
BT offers a mirror image of Vodafone’s moves, as the former fixed network provider now hopes the creation of a new quadruple play offer including Long Term Evolution mobile services, fixed network voice, video entertainment and high speed access will boost revenue per account and slow fixed network voice line churn rates. Though 60 percent of U.K. consumers buy a bundle of some sort, the “typical” bundle is a dual-play bundle of fixed network voice and high speed access, according to Ofcom, the U.K. communications regulator.
Some 27 percent of U.K. households buying a bundle purchase the voice-plus-broadband package. About 21 percent buy a triple-play package including video entertainment as well as voice and high speed access. Just three percent buy a quad play package, and those customers largely are Virgin Media (Liberty Global) customers, it appears. And that is the attraction for BT. Very low adoption of quad play packages suggests most of the market still is available.
In that sense, both BT and Vodafone, attacking the market from opposite positions, have the same objective: create compelling quadruple-play offers that allow each to sell more products to a fixed or smaller number of customers.
That is feasible in Europe to a degree that seems quite infeasible in the U.S. market. In that sense, as a practical matter, it might be argued that intermodal assets have higher value in Europe than the United States, at the moment. That does not necessarily mean the financial values of such assets diverge, between regions. But the strategic value clearly is perceived differently.