the strategic implications of european union expansion for mobile telecommunications companies

8/10/2019 The Strategic Implications of European Union Expansion for Mobile Telecommunications Companies

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The strategic implications ofEuropean Union expansion for

mobile telecommunicationscompanies

Peter Curwen and Jason WhalleyStrathclyde Business School, Glasgow, UK

AbstractPurpose The European Union (EU) has recently been signicantly enlarged with the addition of ten countries. This was expected to induce telecommunications operators in the original EU15 toinvest heavily in operators in the accession countries. This paper seeks to analyse the extent to whichthis has occurred in practice.Design/methodology/approach The pattern of licence ownership and subscriber numbers in theEU25 is set out for 30 June 2004. The market position of eight operators likely to have played a role ininvesting in accession countries is examined and the level of concentration in every market iscalculated. A number of case studies of operators are generated and an overall conclusion reached as towhether accession has indeed evinced a strategic response, or is likely to do so during 2005.Findings The results show that there has been no uniform response by operators in the EU15 to theonset of accession, and rather less investment overall than had been anticipated. This is explained by avariety of factors such as lack of investments providing majority control, nancial constraints and thedesire to cluster investments.Originality/value This paper provides a timely analysis, eight months on from accession, of howit is likely to affect individual, important industrial sectors within the now EU25.Keywords Mobile radio systems, European Union, Telecommunications, LicensingPaper type Technical

IntroductionOn 1 May 2004, the European Union (EU) witnessed its largest individual expansionwhen ten countries joined. The accession of these ten countries Cyprus (South),Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia andSlovenia has irrevocably changed the EU[1]. Prior to the discussions on accession,there was a clear, albeit diminishing, divide between Eastern and Western Europe.This was certainly the case where telecommunications was concerned, an industrytraditionally treated as a national champion and hence one where governments hadlong been somewhat ambivalent about stake-building by foreigners. On the one hand,they were less than keen on ceding control over the industry to foreigners, while on theother their incumbent operators badly needed new investment which was not availabledomestically. Those countries negotiating for accession were also well aware that theywould be bound by the rules of the EU, which would restrict their ability to keep outforeign companies that originated elsewhere in the EU. Equally, companies that hadstayed out of Eastern Europe on principle would now see their way clear to cross intopost-accession member states.

The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available atwww.emeraldinsight.com/researchregister www.emeraldinsight.com/0955-534X.htm

Strategicimplications of EU expansion

497

European Business ReviewVol. 17 No. 6, 2005

pp. 497-517q Emerald Group Publishing Limited

0955-534XDOI 10.1108/09555340510630545


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The purpose of this paper is to explore two particular issues in the context of themobile telecommunications market: rstly, whether as a consequence of EU expansion,the accession countries either have been or can expect to be the recipients of inwardinvestment from those companies that had largely ignored them prior to 2004;secondly, whether those companies already active in the accession countries prior toaccession would seek to reinforce their existing positions.

To this end, the paper is structured as follows. In the main section below, theownership of mobile communication licences across the enlarged EU will be described.In addition, the geographical footprint of operators will be established, with adistinction being made between those operators that have invested in the accessioncountries and those that have not. In the second main section the focus shifts onto theaccession countries, with the analysis being driven by the issues outlined above.Conclusions will be drawn in the nal section.

Mobile communication licence ownership across the enlarged EU

At the heart of the analysis of the implications of EU expansion on the strategies of mobile communications companies is Table I. This table depicts second generation(2G) known in Europe as the Global System for Mobile (GSM) and third generation(3G) known as the Universal Mobile Telecommunications System (UMTS) mobilelicence ownership across the 25 countries that are now member states of the EU. Inessence, 2G represents a digital technology whose main purpose is to carry voicetelephony while also accommodating low-speed data transfer as exemplied by theshort message service (SMS), while 3G is capable of much higher speeds of datatransfer suitable for large data les and still and video photography. UMTS requiresthe licensing of new spectrum, but there is also an intermediate technology, known asthe General Packet Radio Service (GPRS), that can operate at higher speeds than GSMwhile using the same spectrum and hence the same licence.

Table I builds on Whalley and Curwen (2003) in three ways. Firstly, the tableidenties when each mobile service was launched. Secondly, the table details thenumber of subscribers that each operator had at the end of June 2004. Finally, the tablealso identies the xed-wire incumbent operator for each country. Although thedatabase relates to 30 June 2004, the latest date for which the data can be consistentlycompiled across the EU25, the discussion throughout the paper relates to the situationas of end-January 2005. Signicant events that occurred between June 2004 and January 2005 are highlighted in the text.

Extending Whalley and Curwen (2003) is advantageous in several ways. Bydetailing the number of subscribers that a company has in each country, the tablebegins to differentiate between a simple presence in a country where the company isnot a signicant player and a presence where the company is actually (one of) thelargest in the market in terms of the number of subscribers. By combining the servicelaunch date and the number of subscribers, the table also provides an impression ashow fast the market is growing and how successful the mobile operator has been ingaining subscribers. Since the table identies the xed-wire incumbent for eachcountry as well as the mobile operators, it is also possible to investigate whether or notthe incumbent owns the largest mobile operator in each country. Such commonownership is important, as it will contribute, to a greater or lesser extent, to thecompetitiveness and openness of the mobile market.

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C o u n t r y

F i x e d w i r e

G S M

U M T S b

A u s t r i a

T e l e k o m A u s t r i a

M o b i l k o m

1 2 / 9 3

3 , 1 5 3 , 0 0 0

H u t c h i s o n 3 G

0 4 / 0 3

3 8 , 0

0 0

O N E

1 0 / 9 8

1 , 5 0 7 , 0 0 0

M o b i l k o m

0 4 / 0 3

3 4 , 0

0 0

t e l e

. r i n g

0 5 / 0 0

7 7 3 , 0 0 0

O N E

1 2 / 0 3

8 , 0 0 0

T - M o b i l e

1 0 / 9 6

2 , 0 4 5 , 0 0 0

t e l e

. r i n g

1 2 / 0 3

1 , 0 0 0

T - M o b i l e

0 1 / 0 4

5 , 0 0 0

B e l g i u m

B e l g a c o m

B a s e

0 6 / 9 9

1 , 2 2 4 , 0 0 0

K P N M o b i l e 3 G

[ 0 2 / 0 1 ]

M o b i s t a r

0 8 / 9 6

2 , 6 6 3 , 0 0 0

M o b i s t a r

[ 0 2 / 0 1 ]

P r o x i m u s

0 1 / 9 4

4 , 2 0 3 , 0 0 0

P r o x i m u s

0 4 / 0 4

1 , 0 0 0

C y p r u s ( S o u t h )

C y T A

C y T A

0 4 / 9 5

6 0 2 , 0 0 0

C y T A

[ 1 2 / 0 3 ]

S c a n c o m

1 0 / 0 3

S c a n c o m

[ 1 2 / 0 3 ]

C z e c h R e p u b l i c

C e s k y T e l e c o m

C e s k y M

o b i l

0 3 / 0 0

1 , 6 7 8 , 0 0 0

E u r o T e l P r a h a

[ 1 2 / 0 1 ]

E u r o T e l P r a h a

0 7 / 9 6

4 , 2 8 5 , 0 0 0

T - M o b i l e

[ 1 2 / 0 1 ]

T - M o b i l e

0 9 / 9 6

4 , 0 7 5 , 0 0 0

D e n m a r k

T D C

O r a n g e

0 3 / 9 8

6 0 5 , 0 0 0

H i 3 G D e n m a r k

1 1 / 0 3

3 0 , 0

0 0

S o n o f o n

0 3 / 9 2

1 , 2 1 2 , 0 0 0

O r a n g e

[ 1 0 / 0 1 ]

T D C

0 3 / 9 2

2 , 3 9 0 , 0 0 0

T D C

[ 1 0 / 0 1 ]

T e l i a S o n e r a

0 1 / 9 8

5 5 6 , 0 0 0

T e l i a D e n m a r k

[ 1 0 / 0 1 ]

E s t o n i a

E e s t i T e l e f o n

E M T

0 1 / 9 5

5 3 1 , 0 0 0

E e s t i T e l e c o m

[ 0 7 / 0 3 ]

R a d i o l i n j a E e s t i

0 1 / 9 5

1 7 7 , 0 0 0

R a d i o l i n j a E e s t i

[ 0 7 / 0 3 ]

T e l e 2

0 9 / 9 6

4 1 8 , 0 0 0

T e l e 2

[ 0 8 / 0 3 ]

F i n l a n d



0 6 / 9 2

2 , 2 6 8 , 0 0 0

F i n n e t G r o u p

[ 0 3 / 9 9 ]

R a d i o l i n j a

1 2 / 9 1

1 , 3 3 4 , 0 0 0

R a d i o l i n j a

[ 0 3 / 9 9 ]

S u o m e n 2 G

0 1 / 0 0

6 9 0 , 0 0 0

T e l e 2

[ 0 3 / 9 9 ]


[ 0 3 / 9 9 ]

F r a n c e

F r a n c e T e l e c o m

O r a n g e

0 7 / 9 2

2 0 , 4

0 0 , 0 0 0

O r a n g e

0 2 / 0 4

2 , 0 0 0

S F R

0 7 / 9 2

1 4 , 3

9 7 , 0 0 0

S F R

0 6 / 0 4

1 , 0 0 0

B o u y g u e s T e l

0 5 / 9 6

6 , 9 0 5 , 0 0 0

B o u y g u e s T e l

[ 0 9 / 0 2 ]

G e r m a n y

D e u t s c h e T e l e k o m

E - P l u s

0 5 / 9 4

8 , 7 0 0 , 0 0 0

E - P l u s

0 6 / 0 4

1 , 0 0 0

m m O 2

1 0 / 9 8

6 , 3 2 0 , 0 0 0

G r o u p 3 G

[ 0 7 / 0 0 ]

T - M o b i l e

0 7 / 9 2

2 7 , 0

6 0 , 0 0 0

m m O 2

0 6 / 0 4

1 , 0 0 0

V o d a f o n e

0 6 / 9 2

2 5 , 4

7 4 , 0 0 0

T - M o b i l e

0 1 / 0 4

1 , 0 0 0

V o d a f o n e

0 1 / 0 4

6 , 0 0 0

G r e e c e

O T E

C o s m O T

E

0 4 / 9 8

4 , 0 7 4 , 0 0 0

C o s m O T E

0 6 / 0 4

1 , 0 0 0

( c o n

t i n u e

d )

Table I.European Union mobile

licence ownership,30 June 2004a


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C o u n t r y

F i x e d w i r e

G S M

U M T S b

I n f o - Q u e s t

0 6 / 0 2

5 4 7 , 0 0 0

T I M

0 1 / 0 4

1 , 0 0 0

T I M

0 6 / 9 3

2 , 2 1 8 , 0 0 0

V o d a f o n e

[ 0 7 / 0 1 ]

V o d a f o n e

0 7 / 9 3

3 , 0 8 1 , 0 0 0

H u n g a r y

M a t a v

P a n n o n

0 3 / 9 4

2 , 5 8 8 , 0 0 0

T - M o b i l e

0 4 / 9 4

3 , 6 0 8 , 0 0 0

V o d a f o n e

1 1 / 9 9

1 , 5 1 0 , 0 0 0

I r e l a n d

E i r c o m

M e t e o r

0 2 / 0 1

2 2 1 , 0 0 0

H 3 G

1 0 / 0 3

2 , 0 0 0

m m O 2

0 3 / 9 7

1 , 3 9 4 , 0 0 0

m m O 2

[ 0 8 / 0 2 ]

V o d a f o n e

0 6 / 9 3

1 , 8 8 1 , 0 0 0

V o d a f o n e

[ 0 9 / 0 2 ]

I t a l y

T e l e c o m I t a l i a

T I M

0 4 / 9 5

2 6 , 0

1 6 , 0 0 0

H 3 G

0 3 / 0 3

1 , 2 0 0 , 0 0 0

V o d a f o n e

1 2 / 9 5

1 9 , 6

8 6 , 0 0 0

I P S E 2 0 0 0

[ 1 1 / 0 0 ]

W i n d

0 3 / 9 9

1 0 , 5

0 4 , 0 0 0

T I M

0 5 / 0 4

2 , 0 0 0

V o d a f o n e

0 1 / 0 4

5 , 0 0 0

W i n d

[ 1 1 / 0 0 ]

L a t v i a

L a t t e l e k o m

B a l t k o m

0 3 / 9 7

7 5 5 , 0 0 0

L M T

[ 0 9 / 0 2 ]

L M T

0 1 / 9 5

5 7 5 , 0 0 0

T e l e 2

[ 0 9 / 0 2 ]

L i t h u a n i a

L i e t u v o s T e l e k o m a s

B i t e

0 8 / 9 5

7 3 9 . 0 0 0

O m n i t e l

0 3 / 9 5

1 , 1 3 9 , 0 0 0

T e l e 2

1 2 / 9 9

7 4 6 , 0 0 0

L u x e m b o u r g

E P T

E P T

0 7 / 9 3

3 5 2 , 0 0 0

E P T

0 6 / 0 3

4 , 0 0 0

T a n g o

0 5 / 9 8

2 0 1 , 0 0 0

L u X c o m

[ 0 7 / 0 3 ]

T a n g o

1 0 / 0 3

1 , 0 0 0

M a l t a

M a l t a c o m

G o M o b i l e

1 2 / 0 0

1 3 0 , 0 0 0

V o d a f o n e

0 4 / 9 7

1 6 2 , 0 0 0

N e t h e r l a n d s

K P N T e l e c o m

K P N

0 7 / 9 4

5 , 4 0 6 , 0 0 0

K P N

[ 0 7 / 0 0 ]

O r a n g e

0 1 / 9 9

1 , 5 4 4 , 0 0 0

O r a n g e

[ 0 7 / 0 0 ]

T e l f o r t

1 1 / 9 8

1 , 8 5 0 , 0 0 0

T e l f o r t

[ 0 7 / 0 0 ]

T - M o b i l e

0 2 / 9 9

2 , 2 2 4 , 0 0 0

T - M o b i l e

[ 0 7 / 0 0 ]

V o d a f o n e

0 9 / 9 5

3 , 4 5 2 , 0 0 0

V o d a f o n e

0 1 / 0 4

1 , 0 0 0

P o l a n d

T P S A

C e n t e r t e l

0 3 / 9 8

6 , 2 1 5 , 0 0 0

C e n t e r t e l

[ 1 2 / 0 0 ]

P o l k o m t e l

1 0 / 9 6

5 , 9 5 0 , 0 0 0

P o l k o m t e l

[ 1 2 / 0 0 ]

( c o n

t i n u e

d )

Table I.

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C o u n t r y

F i x e d w i r e

G S M

U M T S b

P T C

0 9 / 9 6

7 , 3 0 0 , 0 0 0

P T C

[ 1 2 / 0 0 ]

P o r t u g a l

P o r t u g a l T e l e c o m

T M N

1 0 / 9 2

4 , 7 2 7 , 0 0 0

T M N

0 4 / 0 4

1 , 0 0 0

V o d a f o n e

1 0 / 9 2

3 , 3 2 0 , 0 0 0

V o d a f o n e

0 1 / 0 4

2 , 0 0 0

O p t i m u s

0 9 / 9 8

1 , 9 6 0 , 0 0 0

O p t i m u s

0 6 / 0 4

1 , 0 0 0

S l o v a k i a

S l o v e n s k e T e l e k o m u n i c a c i e

E u r o T e l

0 2 / 9 7

1 , 7 4 0 , 0 0 0

E u r o T e l

[ 0 7 / 0 2 ]

O r a n g e

0 1 / 9 7

2 , 2 0 8 , 0 0 0

O r a n g e

[ 0 7 / 0 2 ]

S l o v e n i a

T e l e k o m S l o v e n i j e

M o b i t e l

0 6 / 9 6

1 , 3 8 4 , 0 0 0

M o b i t e l

1 2 / 0 3

2 , 0 0 0

S i . m

o b i l

0 3 / 9 9

3 6 3 , 0 0 0

V e g a

1 2 / 0 1

3 3 , 0 0 0

S p a i n

T e l e f o n i c a

A m e n a

0 1 / 9 9

8 , 6 8 6 , 0 0 0

A m e n a

[ 0 3 / 0 0 ]

T e l e f o n i c a

0 7 / 9 5

1 8 , 6

4 0 , 0 0 0

T e l e f o n i c a

0 2 / 0 4

2 , 0 0 0

V o d a f o n e

1 0 / 9 5

9 , 9 5 6 , 0 0 0

V o d a f o n e

0 1 / 0 4

3 , 0 0 0

X f e r a

[ 0 3 / 0 0 ]

S w e d e n


S p r i n g M o b i l e

0 6 / 0 2

H i 3 G

0 4 / 0 3

7 0 , 0

0 0


1 1 / 9 2

4 , 1 3 8 , 0 0 0

T e l e 2

0 6 / 0 4

1 , 0 0 0

T e l e 2

0 1 / 9 2

3 , 4 2 0 , 0 0 0


0 3 / 0 4

5 , 0 0 0

V o d a f o n e

0 9 / 9 2

1 , 4 7 9 , 0 0 0

V o d a f o n e

0 1 / 0 4

3 , 0 0 0

U K

B T

m m O 2

0 7 / 9 4

1 3 , 5

2 5 , 0 0 0

m m O 2

[ 0 5 / 0 0 ]

O r a n g e

0 4 / 9 4

1 3 , 7

4 7 , 0 0 0

3 U K

0 3 / 0 3

7 3 8 , 0 0 0

T - M o b i l e

0 9 / 9 3

1 4 , 8

9 9 , 0 0 0

O r a n g e

[ 0 5 / 0 0 ]

V o d a f o n e

1 2 / 9 1

1 4 , 2

2 7 , 0 0 0

T - M o b i l e

[ 0 5 / 0 0 ]

V o d a f o n e

0 5 / 0 4

5 , 0 0 0

N o t e s :

a T h e e n t r i e s c o n s i s t o f n a m e o f o p e r a t o r , d

a t e w h e n i t s s e r v i c e w a s r s t l a u n c h e d a n d t h e n u m b e r o f s u b s c r i b e r s a t t h e e n d o f J u n e 2 0 0 4

. I n t h e

c a s e o f U M T S , e n t r i e s i n b r a c k e t s d e n o t e t h e d a t e t h e l i c e n c e w a s i s s u e d i f t h e n e t w o r k i s n o t o p e r a t i o n a l , w

h e r e a n o p e r a t o r p r o v i d e s b o t h G S M ( 9 0 0 M H z

b a n d ) a n d P C N s ( 1 , 8 0 0 M H z b a n d )

, t h e s u b s c r i b e r d a t a a r e p r o v i d e d f o r b o t h s e r v i c e s t o g e t h e r . S

u b s c r i b e r d a t a o f t e n d i f f e r d e p e n d i n g u p o n t h e s o u r c e , b u t

s u c h d i f f e r e n c e s a r e r a r e l y s t a t i s t i c a l l y s i g n i c a n t i n t h e c o n t e x t o f E U c o u n t r i e s . T h e r e i s

, h o w e v e r , s

o m e c o n t r o v e r s y o v e r t h e c o u n t i n g o f i n a c t i v e

c u s t o m e r s . F o r e x a m p l e , V o d a f o n e a n d O r a n g e i n t h e U K d e l e t e c u s t o m e r s w h o h a v e b e e n i n a c t i v e ( m a k i n g , s a y , n o o u t g o i n g c a l l s a n d r e c e i v i n g f e w e r

t h a n f o u r i n c o m i n g c a l l s p e r m o n t h ) f o r t h r e e m o n t h s , w h e r e a s s o m e o p e r a t o r s o n l y d o s o a f t e r a y e a r o f i n a c t i v i t y a n d s o m e n o t a t a l l ;

b T h e t e r m l a u n c h

i n t h e c o n t e x t o f U M T S c a n m e a n m a n y t h i n g s , b

u t n o r m a l l y r e f e r s t o t h e l a u n c h o f a s e r v i c e f o r c o r p o r a t e c u s t o m e r s v i a d a t a c a r d s i n s e r t e d i n l a p t o p s .

A c o n s u m e r s e r v i c e v i a h a n d s e t s u s u a l l y f o l l o w s m o n t h s l a t e r

. T h e s u b s c r i b e r n u m b e r s a r e u n l i k e l y

t o b e e n t i r e l y a c c u r a t e

.

S o u r c e : D e t a i l s o b t a i n e d

f r o m r e g u l a t o r s w e b s i t e s , c o m p a n y w e b s i t e s a n d m e d i a a n d i n t e r n e t w e b s i t e s

Table I.


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It is possible to make a series of preliminary observations about the mobile market of the enlarged EU in general and the mobile markets of accession countries in particularas of 31 January 2005. In the rst place, 2G mobile communication licences had beenissued in all member states. Although 78 licences were operational at this point of time,the number of licences operational in each member state varied between two and ve.Cyprus (South), Latvia, Luxembourg, Malta and Slovakia operated only two 2Glicences, while the Netherlands uniquely operated ve. The most common number of operational 2G licences was three since this applied in 13 member states.

In contrast, not all EU-member states had issued 3G licences. At the end of January2005, 23 of the 25 EU-member states had issued 3G licences Lithuania and Maltaremained the only exceptions since Hungary had issued licences to Pannon, T-Mobileand Vodafone in December 2004. More 3G licences than 2G licences had been put onoffer, but because not all of the 3G licences on offer had either been awarded orretained, the number of operational 3G licences (including networks being rolled out)was less than the number of operational 2G licences. There were, as noted, 78operational 2G licences but of the 92 3G licences initially on offer only 82 had formallybeen awarded and of these fewer than 78 were set to become operational[2]. This issomewhat surprising as many governments had indicated their desire to use the 3Glicensing process as a way to increase the number of companies, and therefore, theamount of competition, in the market. It is of interest to compare the names of theholders of 3G licences with the 2G incumbents in Table I, and at rst sight there mayappear to be a surprising number of new entrants, but the match is considerably closerthan it appears to be since many incumbents used other names than their own whenapplying for 3G licences, often because they were part of a consortium. In practice, thelists of 2G and 3G licensees are closely matched, and there is only one new entrant thatcrops up at all regularly, namely Hutchison Whampoa trading as, for example, H3G.

Only a minority of member states witnessed the launch of 3G services prior to the

end of 2003. By that point only ten mobile operators among the 25 listed above hadbegun to offer 3G services, although by the end of June 2004 the number of ofciallaunches involved 32 operators in 14 member states, as shown in Table I. More thanhalf of the 3G subscribers on 30 June 2004 were to be found in Italy, with the UKaccounting for another 750,000. In both countries, the main operator concerned tradesunder the same brand, namely 3, although ownership of the brand is not identical inevery country where it has launched. It is notable that 3, or perhaps more accuratelyits main owner Hutchison Whampoa, accounted for six of the twelve launches during2003, a phenomenon that was clearly related to its lack of 2G licences.

Secondly, it may be noted that across the enlarged EU, the incumbent xed-wireoperator owns the largest mobile operator in 19 member states: Austria, Belgium,Cyprus (South), Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece,Hungary, Italy, Latvia, Luxembourg, Netherlands, Portugal, Slovenia, Spain andSweden. This observation can also be phrased more informatively in a slightly differentfashion; that is, in just two of the 15 old member states of the EU the incumbentoperator does not own the largest mobile operator. The exceptions are Ireland and theUK. In the case of Ireland, Eircom, the incumbent xed operator, divested its mobilesubsidiary, Eircell, in May 2001, and Vodafone subsequently acquired Eircell for e 4.5billion in December 2001. In the UK, BT also divested its mobile arm, mmO 2. InNovember 2001, BT spun-off mmO 2 in order to ease the nancial problems that it was

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facing in the aftermath of acquiring 3Glicences and buying out its partners in its British,Irish, Dutch and German mobile businesses. Surprisingly, mmO 2 is not the largestmobile operator in the UK nor has it been for many years. This accolade has alternatedbetween Orange, a subsidiary of France Te lecom, and Vodafone. Asof June 2004, all fourGSM network operators had at least 13.5 million subscribers and, as Table I shows, noother member state has anything like such equality between its operators.

This leaves four member states, all accession countries, where the incumbent xedoperator does not own the largest mobile operator. In all of these Lithuania, Malta,Poland and Slovakia the largest mobile operator is partially owned by foreigninvestors. In Lithuania, the incumbent xed operator does not own a stake in anymobile operator, while in the case of the other three countries the incumbent owns astake in the second-largest mobile operator.

Related to the above is a third observation, namely, that those mobile operators withmultiple licences across the EU are usually the second- or third-largest operators in themarket. Through combining the subscriber information contained in Table I withWhalley and Curwen (2003) which identied multiple licence ownership across Europe,it is possible to determine the market position of operators in EU-member states asshown in Table II. With two exceptions Tele2 (2003) and mmO 2 each companyidentied in the table is the largest operator in its home market. Tele2 is thesecond-largest operator in Sweden after TeliaSonera while mmO 2 is the smallest of thefour second-generation network operators in the UK.

If we focus on those mobile operators that are the largest operators in a foreigncountry, then a common trait is that those markets where they are the largest arecomparatively small. For example, TeliaSonera is the largest mobile operator in thethree Baltic States but these are among the smallest of all the EU markets. Orange (inSlovakia) and Vodafone are also the largest operators in relatively small markets.Vodafone (along with TDC (2004)) until March has a (minority) stake in the largest

operator in the modestly sized Belgian market and a fully owned operation in Irelandand Malta. Deutsche Telekom is the largest mobile operator in Hungary and Poland,but whereas the Hungarian market is relatively modest in size with 7.7 millionsubscribers, the Polish market, with more than 19.5 million subscribers, is thesixth-largest in the EU. In this respect, therefore, Deutsche Telekom is unique amongthe mobile operators identied in Table II.

Fourthly, drawing on the subscriber information contained in Table I, it is possibleto calculate the percentage of the mobile market controlled by the largest (two) mobileoperator(s) as of 30 June 2004. As we can observe from Table III, it is normally the casethat the largest mobile operator controls at least 40 per cent of the market. Often, thepercentage controlled by the largest operator is far greater. For example, in Spain,Telefo nica accounted for 50 per cent of all mobile subscribers. However, in fourcountries Greece, The Netherlands, Poland and the UK the largest mobile operatorcontrolled less than 40 per cent of all subscribers. In all cases bar the UK, the largestmobile operator controlled at least 35 per cent of the market, but in the case of the UKthe market share of the largest operator was just 26.4 per cent.

If the calculation is extended to include the second-largest mobile operator in eachmarket, then in most member states the mobile market is, to all intents and purposes, aduopoly. The two largest mobile operators normally control over 70 per cent of themarket between them, with the only exceptions being Austria, the Netherlands, Poland


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and the UK. However, it could be argued from the data that the only true exceptions arethe Netherlands and the UK.

Where three or more mobile operators have been licensed, a considerable gap oftenexists between the number of mobile subscribers controlled by the second-largestoperator and the number of subscribers controlled by the third-largest mobile operator.In nine member states, the subscriber base of the third-largest mobile operator isapproximately half the size of the second-largest mobile operator. For example, inSweden, Vodafone has just 43 per cent of the number of subscribers that Tele2 does.The other member states where the third-largest operator is approximately half thesize of the second-largest are Belgium, Denmark, Estonia, Finland, France, Hungary,Italy and the Netherlands.

In addition to the aforementioned nine countries, it is possible to identify anotherthree member states where the third-largest mobile operator has considerably fewer

Operator

EU CountryDeutscheTelekom Orange mmO 2 Telenor a Tele2 b

TeliaSonera TDC Vodafone c

Austria 2 3 3 * 3 *Belgium 2 1Cyprus *Czech R 2Denmark 3 d 2 * 4d 1 *Estonia 2 1 *Finland * 1 *France 1 2Germany 1 4 2Greece 2Hungary 1 2 3Ireland 2 1Italy *

e2

Latvia 1 2Lithuania 2 1 3 *Luxembourg 2 *Malta 1Netherlands 3 5 * 2Poland 1 2 3 3Portugal 3 2Slovakia 2 1Slovenia *Spain *

e2

Sweden 2 1 3UK 1 3 4 2

Notes: *Indicates a presence other than as a licensed operator with its own network. aTelenor is the

largest mobile operator in its home market of Norway, a non-EU member; b

Also present throughMVNO arrangements in Austria, Denmark, Finland and The Netherlands and through holding a 3Glicence in Finland; cAlso present through a Network Partnership Agreement in Austria, Cyprus(South), Denmark, Estonia, Finland, Lithuania, Luxembourg and Slovenia; d Stake sold to TeliaSonerain October 2004. The second GSM licence is to be returned in December 2005; ePresent via partownership of a 3G licence that has yet to be launched

Table II.Market position bynumber of subscribers,30 June 2004

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than half of the subscriber base of the second-largest. In Germany, E-Plus has aroundone-third of the subscribers of the second-largest operator, Vodafone. In Ireland andSlovenia, the size difference is even larger; in Slovenia the third-largest mobile operatorhas just 11 per cent of the subscribers of the second-largest, while in the case of Irelandthe gure is 16 per cent.

Mobile communication markets in accession countriesThe rst issue to address at this point is the extent to which mobile operators areEU-centric in respect of their geographical footprints, distinguishing betweenoperators with a heavy presence in the former EU and those with a presence in theaccession countries.

Table IV is drawn up so as to include those operators with licences in at least twoaccession countries. This is a modest enough total, but reects the fact that only oneoperator, Vodafone, is present in more than four of the ten. Even here, however, there isa need to distinguish carefully between operators with licences and those companiesoperating under other arrangements. For example, it is possible for an operator to act asa mobile virtual network operator (MVNO) by leasing spare capacity on anincumbents network. Technically, the denition of an MVNO requires an operator topossess its own switches and sell under its own brand, although there are also less

Country

Total numberof 2G mobile

subscribers (000s)

Market share of the largestoperator as percentage of

total 2G market

Market share of the largesttwo operators as percentage

of total 2G market

Austria 7,478 42.2 69.5Belgium 8,090 52.0 84.9Cyprus (South) 602 100 Czech Republic 10,038 42.7 83.3Denmark 4,763 50.2 75.6Estonia 1,126 47.2 84.3Finland 4,292 52.8 83.9France 42,205 48.3 83.2Germany 67,554 40.1 77.8Greece 10,549 38.6 73.8Hungary 7,706 46.8 80.4Ireland 3,497 53.8 93.7Italy 56,206 46.3 81.3

Latvia 1,330 56.8 100Lithuania 2,624 43.4 71.8Luxembourg 553 63.7 100Malta 292 55.5 100The Netherlands 14,485 37.3 61.2Poland 19,465 37.5 69.4Portugal 10,007 47.2 80.4Slovakia 3,948 55.9 100Slovenia 1,780 77.8 98.1Spain 37,282 50.0 76.7Sweden 9,037 45.8 83.6UK 56,398 26.4 51.6

Table III.Market concentration,

30 June 2004


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rigorous ways to operate virtually including as an enhanced service provider orsimply as a reseller of another operators branded service. The primary advocate of theMVNO approach is Tele2 although, as Table III shows, it prefers direct investment innetworks in accession countries while operating as a MVNO in more establishedmarkets. For its part, Vodafone prefers to negotiate network partner agreements,involving no direct stake, whereby the network in question is usually re-branded withthe original operators name hyphenated to that of Vodafone. By this means, Vodafoneenjoys brand recognition without needing to lay out huge sums of money, and is able tointroduce its Vodafone live! Portal with associated roaming benets, while the networkowner enjoys improved subscriber numbers and reduced churn because the Vodafonename is more attractive than its own. In practice, Vodafone owns stakes in only threeaccession countries, so the operator with the greatest presence involving investment isin fact Deutsche Telekom subsidiary T-Mobile.

OperatorEU Country Vodafone Orange e Tele2 TeliaSonera Deutsche Telekom g TDC

Austria Y a Y Yd Y YBelgium Y YCyprus Y a

Czech R YDenmark Y a Yf Yd Y YEstonia Y a Y YFinland Y a Y YFrance Y YGermany Y Yb,c YGreece YHungary Y YIreland YItaly Y Yc

Latvia Y Y

Lithuania Ya

Y Y YLuxembourg Y a Yf YMalta YNetherlands Y Y Yd YPoland Y Y Y YPortugal Y YSlovakia Y YSlovenia Ya

Spain Y Yc

Sweden Y Y YUK Y Y YTotal accession 7 2 3 3 4 2Total 22 10 9 9 8 4

Notes: a

Via Partner Agreement not involving direct investment; b

Network in abeyance; c

3G only;dTrading as a MVNO; eFrance Te lecom has reclaimed virtually 100 per cent ownership of Orange andhence no distinction is made concerning ultimate ownership; f Orange sold the licence in Denmark toTeliaSonera in October 2004 and returned the 3G licence in Luxembourg to the regulator in December2004; g The stakes are mostly held via mobile subsidiary T-Mobile

Table IV.Operators present in atleast two accessioncountries at 30 June 2004

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This is unsurprisingsince thegeographicalposition of Germany clearly lends itself toinvestment in countries close to its borders, many of which are accession countries (withpossibly more to come). This is an important point because it is immediately noticeablethat three of the big ve EU incumbent mobile operators, namely mmO 2, Telecom ItaliaMobile (TIM) and Telefo nica Moviles do not appear in Table IV. For the latter inparticular, this is ultimately a question of history, culture and language. As of 30 June2004, Telefonica Moviles (and/oroccasionally itsparent) wasoperational in ten overseascountries, of which nine were to be found in Latin America the only exception wasMorocco, Spains immediate southern neighbour. In other words, apart from sometoying with 3G licences that had resulted in nothing other than fairly substantialwrite-offs, the company had no interest in the pre-accession EU, let alone the accessioncountries. This strategy, it must be said, had served it well to that point and it hascontinued to pursue it in more recent months by acquiring the Latin American holdingsof BellSouth. TIM, for its part, also had over ve million proportionate subscribers[3] inLatin America as of 30 June 2004, albeit in only three countries, the same number inwhich it is operated elsewhere in the world. In practice, its presence in a single accessioncountry, the Czech Republic, merely represented a tiny stake in the operator controlledby T-Mobile, and was (as it remains) the least signicant of its six (now ve) overseasholdings. As for mmO 2 (both before and after its divestment from what is now the BTGroup), it hadspent a period of retrenchment involving theshedding of minority interestssuch that it remained operational only in Germany, the Netherlands and the UK (plus theIsle of Man). Even so, it has to be said that historically it was never really interested in theaccession countries, preferring to invest in South-East Asia and North America.

It is also be useful for the purposes of clarication to examine briey the operationsof mobile companies in what used to be termed Eastern Europe since only some of itsconstituent countries have become accession countries. At the time of accession, fourEU incumbents had a signicant presence involving investment in Eastern Europe,

namely Telenor, OTE, T-Mobile and TeliaSonera. OTE, interestingly, currently hasstakes in Albania, Armenia, Bulgaria, Macedonia, Romania and Serbia, so it has notproted, to put it mildly, from accession. TeliaSoneras accession stakes are in practiceentirely in the Baltic countries, so its stakes to the east, in Georgia, Kazakhstan,Moldova and Russia have also all missed the accession boat, at least for now. For itspart, Telenor currently has 11 overseas interests but, interestingly, it is not focussedupon the Nordic/Baltic area, being present only in Denmark and Norway, whereas ithas stakes in Albania, Montenegro, Russia and the Ukraine in respect of which is alsomissed out on accession although it did achieve a single success story in Hungary.T-Mobile accordingly stands out because it has stakes in four accession countries, of which three (Czech Republic, Hungary and Poland) individually generated more thantwo million proportionate subscribers as of 30 June 2004. In addition, it owns stakes inCroatia, Macedonia and Russia, so of its total of 13 overseas holdings the majority(Austria, Czech Republic, Hungary, the Netherlands, Poland, Slovakia and the UK) arenow EU-based as a result of accession even if the USA comfortably generates thethird-largest number of proportionate subscribers after Germany and the UK.

What the above suggests is that there is a useful distinction to be made between theBaltic and Eastern European aspects of accession Cyprus (South) and Malta are of little signicance because of their size and lack of potential for the entry of newoperators. Taking the three Baltic accession countries as a whole, the six operators


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listed in Table IV generate nine entries although that is somewhat distorted by theVodafone Partnership Agreements. In contrast, the ve broadly Eastern Europeancountries generate ten entries. This is not a signicant difference, so it is worth askingwhether it results from the companies sampled. To answer this, we can return to thedata in Whalley and Curwen (2003) which encompass 13 major European operators,and these reveal that increasing the sample size makes almost no difference whencompared to Table IV above. Of the ten accession countries, only two are affected at allby the inclusion of the additional seven operators, namely Hungary where Telenor hasa substantial stake and the Czech Republic where TIM has a very small stake. It is alsopossible to establish whether any signicance can be attributed to the fact that twoNordic countries Iceland and Norway are not members of the EU. In practice,Iceland is not signicant since the only EU operator there is Vodafone via aPartnership Agreement, but in Norway we nd (predictably) both Telenor andTeliaSonera (trading as NetCom GSM) as incumbents with Tele2 as a MVNO (althoughit has returned its 3G licence).

In summary, accordingly, the situation was as follows at the time of accession:Vodafone had invested in accession countries in the former Eastern Europe (Group A)but had also been keen to extend its footprint to the Baltic accession countries (GroupB) without investing heavily. T-Mobile had invested heavily in Group A but hadignored Group B. Orange was modestly involved in Group B but had ignored GroupA. TDC was slightly interested in both, while both TeliaSonera and Tele2 were heavilyinvested in Group B while remaining wholly disinterested in Group A. Curiously,Telenor (not included in Table IV) was, as noted, the only Nordic operator acting in anentirely non-Nordic manner where accession was concerned. From the above it can beseen that there was no common view of how to take advantage of the opportunities thataccession would (supposedly) bring.

Expansion and consolidationGiven the differences in the countries in which the mobile operators identied inTable IV had chosen to invest prior to accession, an inevitable question to ask iswhether the accession of new members states either has encouraged in the interim, orcan be expected to encourage, any changes in their strategic priorities.

If we begin with T-Mobile, then the strategic importance of the Eastern Europeancountries to the company is clear for all to see. Indeed, the CEO Kai-Uwe Ricke, baskingin predictions of massive cash inows during 2004, stated in May 2004 that Takinginto account the EUs enlargement towards the east, we are placing a special focus onthis region. It is possible to calculate the importance of this region to T-Mobile as of 30 June 2004 when it had in total roughly 75.5 million proportionate subscribers. Of these,27 million were in Germany and 46.2 million in total in the pre-accession EU. Accessiontransferred a further 8.5 million to that total, yielding 54.7 million in total in thepost-accession EU. The rest were largely accounted for the USA (14.6 million) andRussia (5.2 million) with Croatia and Macedonia adding 893,000 between them.

T-Mobile has a choice between moving into new countries and expanding intoexisting ones. In both cases, much depends upon existing shareholders and theirwillingness to sell. Faced with a cash offer above the market price many shareholdersmight be expected to succumb, but Deutsche Telekoms own shareholders are unlikelyto sanction using up cash reserves to support a move into the likes of Moldova.

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Moreover, T-Mobile was not willing to ght for the 2G licence issued in Bulgaria inMay 2004 the stake in BTC which came with the licence was won by a private equitycompany in preference to Turk Telecom.

Hence, the probability is that T-Mobile will prefer to increase its existing stakes, aslisted in Table V. In some cases, the purchase of additional equity will consolidate itsexisting control over the operator while in other cases the purchase could allowT-Mobile to take control of the operator for the rst time. T-Mobile was particularlykeen to acquire the 51 per cent of PTC it did not own in Poland, if only to keep one stepahead of Vodafone in a country with a modest penetration ratio. It accordingly uppedits offer to e 1.3 billion in June 2004, having had a slightly lower offer rejected inSeptember 2003, and the offer was accepted on 1 September and cleared by theEuropean Commission on 30 October. Furthermore, it was conrmed in September thatSlovenske Telekomunikacie was about to acquire the outstanding 49 per cent of Eurotel Bratislava, thereby transferring effective control (via a 51 per cent stake) toT-Mobile, but this has yet to obtain regulatory clearances. Thus, its existing stakes

provide T-Mobile with ample incentives and opportunities to continue its EasternEuropean-focused investment strategy. However, one intriguing prospect lay in theCzech Republic where, despite its majority stake in an incumbent, T-Mobile CZ,T-Mobile was alleged to be interested in acquiring EuroTel Praha via a bid for parentCesky Telecom. Presumably, had it done so it would have been forced to dispose of itsexisting network which is almost the same size, but this switch of operator would havegot around the problem of trying to obtain full ownership of T-Mobile CZ. In the event,perhaps understandably, T-Mobile chose not to line up as a potential bidder for Cesky Telecom at the end of January 2005. As a nal point, the existing geographical bias can

Totalsubscribers Stakeper cent Proportionatesubscribers Country Other main stakeholders

2,045,000 100 2,045,000 Austria 175,000 25.0a 44,000 Bosnia Hrvatski Telekomunikacije1,380,000 51.0 704,000 Croatia The state 49 per cent4,075,000 56.0 2,282,000 Czech Rep. Ceske Radiokom 39.2 per cent27,060,000 100 27,060,000 Germany 3,608,000 59.5b 2,147,000 Hungary Mata v623,000 30.3c 189,000 Macedonia Matav2,224,000 100 2,224,000 Netherlands 7,300,000 49.0 3,577,000 Poland Elektrim/Vivendi 51 per cente

17,330,000 25.1 5,248,000 Russia Sistema 52 per cent1,739,000 25.6d 445,000 Slovakia The state 49 per cent

14,899,000 100 14,899,000 UK Notes: aVia a 51 per cent stake in Hrvatski Telekomunicacije of Croatia which owns 49 per cent of Eronet; bDeutsche Telekom holds its stake indirectly via Mata v which wholly owns the licensee;cDeutsche Telekom holds its stake indirectly via Mata v which owns 51 per cent of MakTel; d DeutscheTelekom owned 51.2 per cent of Slovenske Telekomunikacie which owns 51 per cent of EuroTelBratislava. The rest, shared by Verizon Communications and AT&T Wireless, was provisionally soldto ST in September 2004 but has yet to be cleared by the European Commission; eAcquired byDeutsche Telekom on 30 October 2004

Table V.T-Mobile, 30 June 2004


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be expected to continue when the location of the next wave of accession countries,which will of necessity largely be located within a broadly dened Eastern Europe, istaken into account.

Will any of the other mobile operators identied in Table IV follow T-Mobile andrespond to accession by increasing their geographical coverage? As shown in Table IV,Vodafone is already present in all but three of the ten accession countries, so the scopefor it to invest in more of these markets is actually quite limited. Of the three marketswhere Vodafone is not presently active, the most signicant is the Czech Republic. Of the three 2G operators in the Czech Republic, two Cesky Mobil and EuroTel Praha are potential acquisitions. The third operator, T-Mobile CZ, is majority owned byDeutsche Telekom, and thus unavailable. In principle, the 51 per cent stake in Cesky Telecom, owner of EuroTel Praha, that is currently being sold by the Czechgovernment provides an inviting target. Vodafone has recently indicated that it iswilling, and has the nancial resources, to acquire the entire company (the rest isowned by nancial institutions), and it does have prior experience of hiving off andselling a xed-wire network dating back to its takeover of Mannesmann.

Cesky mobile is wholly owned by Telesystem International Wireless, which may beprepared to sell its stake if the price is sufciently attractive. Having said this, itremains to be seen whether Vodafones shareholders would be prepared to countenancethe comparatively expensive acquisition of the smallest of the Czech Republics three2G operators. Assuming that Vodafone fails to acquire Cesky Telecom it facespotential opposition from Belgacom, Orange, Swisscom, TDC and Telefo nica andgiven the below 20 per cent market share of Cesky Mobile, a more attractive course of action could be to enter into a Network Partnership Agreement.

The other two markets, Latvia and Slovakia, are comparatively small. As aconsequence, it is more likelythatVodafone will enter these markets, if at all, through theuse of Network Partnership Agreements rather than equity investments. However, this

assumes that the existing 2G operators would enter into such an agreement. So far asLatvia is concerned, this is highly unlikely given who owns the twoexisting operators Baltkom is wholly owned by Tele2 while LMT is largely owned by the Latvian state(39.7 per cent) and TeliaSonera (54.6 per cent). It is inconceivable that either Tele2 orTeliaSonera would sign a Network Partnership Agreement with Vodafone as this wouldexpand the regional coverage of their main competitor in the Baltic States.

The situation in Slovakia is a little more complicated, not least because Vodafonesability to enter this market is also dependent on the strategic priorities and intentionsof Orange. Orange has only a limited exposure to the mobile markets of the tenaccession countries, with a presence across the EU that is skewed in favour of WesternEurope. Table VI below illustrates the situation.

Orange has made two accession country mobile investments; in Poland, where it orstrictly its parent which once again is its undiluted owner is a majority shareholder inPKT Centertel, and Slovakia where it owns 63.9 per cent of Orange Slovensko, thelargestoperator. These two investments are, however, not particularly representative of the overseas investments that Orange has made altogether Orange has over 20subsidiaries dotted around the world, including a signicant number in Africa. Theirrelative status is made clearer when subscriber numbers are taken into account.Together, Poland and Slovakia account for less than 15 per cent of the wider Europeansubscriber base of Orange, although Orange has also invested in Romania, a country

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that hopes to be among the next wave of accession countries. In contrast, France and theUK, which are the two largest mobile markets of Orange, account for nearlythree-quarters of its European subscriber base. In other words, if Orange were to sell itsstakes in Poland, Slovakia and Romania its subscriber base would not shrink by asmuch as one might expect. However, given that Orange is committed to consolidationbased upon countries where it holds majority stakes and hence control, preferably inconjunction with a top-two ranking, and that parent France Te lecoms short-term needforcash hasabated somewhat in recent months,a wholesale withdrawal from the formerEastern Europe no longer seems at all likely. Indeed, it is a potential bidder for themajority stake in Cesky Telecom (and hence Eurotel Praha) currently on offer.Nevertheless, it is of interest to ask who might buy these stakes if they did becomeavailable.

Vodafone would potentially be interested in the 63.9 per cent of Orange Slovenskoowned by Orange, not least because this would complement its existing array of mobilebusinesses and could possibly act, at a later date, as a springboard for a move into theother Balkan states, but it is unlikely to happen. Not only are Vodafones shareholdersunlikely to be willing to support an acquisition that adds a comparatively smallnumber of subscribers in a market where growth expectations are limited, but alsothere are attractive investments with more potential elsewhere. One such is Romaniawhere Vodafone is already a minority shareholder in Connex see Table VII andwhose population is four times that of Slovakia. The potential of the market may betempting for Vodafone, but even if co-owner Telesystem International Wireless iswilling to sell, it is going to demand a premium price. Outside of such an acquisition, orthat of Cesky Telecom, Vodafone is unlikely to expand into new markets other thanthrough Network Partnership Agreements.

Totalsubscribers

Stakeper cent

Proportionatesubscribers Country Other main stakeholders

1,507,000 17.5 264,000 Austria E.ON 51 per cent2,663,000 50.8 1,352,000 Belgium 605,000 100a 605,000 Denmark 20,400,000 100 20,400,000 France 343,000 54.1 186,000 Moldova Moldavian Mobile 30 per cent1,544,000 100 1,544,000 Netherlands 6,215,000 56.4b 3,505,000 Poland TPSA1,960,000 20.2 396,000 Portugal Sonae.com 46.3 per cent3,957,000 67.8 2,683,000 Romania AIG consortium 20.7 per cent2,208,000 63.9 1,411,000 Slovakia 1,116,000 100c 1,116,000 Switzerland 13,747,000 100 13,747,000 UK

Notes: aThe minority investors were bought out in April 2004. However, the entire company was soldon to TeliaSonera in October; b34 per cent in PTK Centertel directly and the rest via a 33.9 per centstake in TPSA, owner of the other 66 per cent of Centertel. A further 10 per cent of TPSA was acquiredin October 2004; cOrange (Liechtenstein) is a wholly owned subsidiary of Orange Communications of Switzerland

Table VI.Orange, 30 June 2004


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What of the other companies identied in Table IV? For different reasons, neither TDCnor TeliaSonera appear likely to expand their geographical footprint as a result of EUexpansion. TDC has only two remaining investments in accession countries, in Bite inLithuania and Polkomtel in Poland. During 2003, TDC sold its holdings in the CzechRepublic and the Ukraine, so it did not appear to see the former Eastern Europe as

other than providing opportunities for nancial investments. For a period during 2004,any additional investments by TDC in accession countries could be ruled out until theuncertainty over its own future was resolved. In mid-2004, SBC Communications Inc.sold 32.1 per cent of the 41.6 per cent of TDC that it owned[4], but to nancialinstitutions rather than to another operator. The rest is set to follow. Pending thecompletion of this sale, TDC stated that it would not enter into any negotiationsregarding potential new board had been able to conduct a strategic review of thecompany. Evidently, TDC is once again ready to embark upon foreign adventuressince it is a potential bidder for the stake in Cesky Telecom currently on offer. Thismay appear to be a little odd given that TDC departed from the Czech Republic after aseries of (mis)adventures, some involving Cesky Telecom in 2002, but its interest maymerely reect its history of involvement in the country and it is unlikely to have thesort of re-power available to the likes of Vodafone (Table VIII).

The two accession investments that TDC still retains could be sold to free resourcesfor use elsewhere although they do provide a signicant proportion of its subscribers.Interestingly, Vodafone is already associated with both of these companies since it hasa Network Partnership Agreement with Bite in Lithuania and is a fellow shareholder inPolkomtel in Poland. Thus, one possible scenario would see TDC exit Lithuania andPoland through the sale of its stakes in Bite and Polkomtel to Vodafone. However,whether Vodafone would make such a purchase is dependent on its ability to convince

Totalsubscribers

Stakeper cent


551,000 99.7 549,000 Albania 4,203,000 25.0 1,051,000 Belgium Belgacom 75 per cent14,397,000 43.9 6,320,000 France Vivendi Universal 55.8 per cent25,474,000 100 25,474,000 Germany 3,081,000 99.4 3,063,000 Greece 1,510,000 87.9a 1,327,000 Hungary Antenna Hungaria 12.1 per cent1,881,000 100 1,881,000 Ireland 21,430,000 76.8 16,437,000 Italy Verizon Communications 23.2 per cent162,000 100 162,000 Malta 3,452,000 99.9 3,454,000 Netherlands 5,950,000 19.6 1,166,000 Poland TDC, KGHM, PKN all 19.6 per cent3,320,000 100 3,320,000 Portugal 4,090,000 20.1 822,000 Romania TIW 79.0 per cent9,956,000 100 9,956,000 Spain

1,479,000 100 1,479,000 Sweden 3,898,000 25.0 975,000 Switzerland Swisscom 75 per cent14,227,000 100 14,227,000 UK

Note: aRaised to 90 per cent in July 2004 and to 100 per cent in September 2004Table VII.Vodafone, 30 June 2004

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its shareholders. The case for acquiring additional shares in Polkomtel is morecompelling than that for acquiring Bite , primarily because Poland is a much biggermarket with more growth potential than Lithuania, and whoever acquired Bite would

anyway be likely to want to continue its Network Partnership Agreement withVodafone. Nevertheless, the stakes of Vodafone and TDC added together would stillonly amount to 39.2 per cent of Polkomtel, so Vodafone would presumably want to buyout sufcient other stakeholders at the same time to ensure majority ownership. Asnoted above, Deutsche Telekom, for one, expects Vodafone to strike in the reasonablynear future, and it has to be one of Vodafones likeliest next moves within the accessioncountries.

With the exception of the three Baltic States, TeliaSonera has no other mobileinvestments in accession countries and recently terminated its interest in bidding forCesky Telecom. This should not be taken as suggesting that TeliaSonera has only alimited international presence outside of its two home markets Table IX clearlydemonstrates that this is not the case but rather that its mobile investments are in abroad array of countries including some that may be among the next batch of accessioncountries. Telia and Sonera, prior to their merger, did take advantage of the 3Glicensing process to enter Germany, Italy and Spain, three of the largest WesternEuropean markets. However, there has been a period of post-merger repentanceinvolving the writing off of the investments in all three markets[5].

Interestingly TeliaSonera now describes itself as the Nordic and Baltictelecommunications leader, but although this may simply be an appropriatedescription of its market position in these two regions, it does also raise the possibilitythat it will further reduce its international footprint. Without a local partner to offsetthe risk inherent in investing in the next wave of accession countries, it is possible thatTeliaSonera will sell more of its overseas investments, leaving it predominantly as aNordic and Baltic operator. The April 2004 offer by TeliaSonera to take outrightcontrol of Estonias Eesti Telekom, although unsuccessful, together with the purchaseof the outstanding 10 per cent of Lithuanias Omnitel in August 2004 and the recentsales of stakes in Hong Kong and Namibia, reinforces the feeling that its strategicpriorities lie in the Baltic and Nordic states and not elsewhere. Nevertheless,TeliaSonera will be debt-free by the end of 2004, and has a substantial war chest foracquisitions, so a contraction of its international footprint is not a foregone conclusion.Given its proximity to the Baltic states, it is not surprising, therefore, that in August

Totalsubscribers

Stakeper cent


1,507,000 15.0 226,000 Austria E.ON 50.1 per cent2,390,000 100 2,390,000 Denmark 739,000 100 739,000 Lithuania

4,090,000 19.6 822,000 PolandVodafone, KGHM 19.6 per centeach

1,323,000 100 1,323,000 Switzerland

Note: aTDC sold its stakes in the Czech Republic and the Ukraine during 2003Table VIII.

TDC, 30 June 2004a


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2004 TeliaSonera announced that it would be a candidate when Poland offered itsfourth GSM licence.

It is worth noting that the Finnish government appears to have agreed to what ineffect constituted the takeover of Sonera by Telia on the understanding thatTeliaSonera would pursue a strategy of growth. Ultimately, because TeliaSonerastated in June 2004 that its ambition is to take majority control of its foreigninvestments, and given the size of the proportionate subscribers involved, its strategyis dependent primarily upon its relationship with its main partners. For example, therelationship between TeliaSonera and Turkcells largest shareholder, Cukurova, has attimes been fraught Cukurovas stake was conscated by the government in 2003 ascollateral against debts and is being returned in stages commencing in July 2004 andthe situation in Russia is permanently unsettled. Such problems are usually addressedeither via a takeover or a withdrawal. It is signicant that, in late June 2004, theFinnish deputy CEO of TeliaSonera, with responsibility for pursuing the purchase of majority stakes in Turkcell and Megafon, was dismissed by the Swedish CEO (George,2004). At the very least, this indicates that TeliaSonera will not overpay to takecontrol, but to remain a permanent minority investor hardly seems an attractiveproposition as TeliaSonera has acknowledged.

The nal company mentioned in Table IV with a presence in the accession countriesis Tele2. Although Tele2 operates in nine EU-member states, it has made just threeinvestments in the accession countries, namely Tele2 Eesti in Estonia, Tele2 Mobile inLatvia and UAB Tele2 in Lithuania. In other words, Tele2 has invested in the BalticStates that complement geographically its presence in the nearby Nordic States. Asecond characteristic of Tele2s investment strategy is its tendency to use MVNO

Totalsubscribers

Stakeper cent a

Proportionatesubscribers Country f Other main stakeholders

556,000 100 556,000 Denmarkg 531,000 49.0b 260,000 Estonia The state 27 per cent2,268,000 100 2,268,000 Finland 360,000 62.0 223,000 Georgia Turkcell1,353,000 38.0 514,000 Kazakhstan Turkcell; Kazakhtelecom 49 per cent575,000 54.6c 314,000 Latvia The state 39.7 per cent1,139,000 90.0d 1,025,000 Lithuania 211,000 74.0 156,000 Moldova Turkcell1,239,000 100 1,239,000 Norway 9,108,000 43.8e 3,989,000 Russia Telekominvest; LV Finance3,420,000 100 3,420,000 Sweden

Notes: aThe stakes in Georgia, Kazakhstan and Moldova are held via Fintur Holdings, held jointly byTeliaSonera (58.55 per cent) and Turkcell (41.45 per cent). However, TeliaSonera claims the majority of the subscribers; bTeliaSonera offered to buy the rest of the shares in April 2004; c49 per cent is helddirectly and a further 11.4 per cent by Lattelekom, a xed-wire operator that is 49 per cent owned byTeliaSonera; dRaised to 100 per cent in August 2004; eAccording to TeliaSoneras web site butelsewhere consistently stated to be 35.8 per cent; f In Spain, TeliaSonera owns 34.2 per cent jointly withACS and 2.2 per cent independently in the as yet un-launched 3G operator Xfera. In Italy, it holds a 3Glicence but has written off its investment; g TeliaSonera also bought Orange Denmark in October 2004

Table IX.TeliaSonera, 30 June 2004

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arrangements to enter new markets. Of the nine mobile investments that Tele2 hasmade in the EU, three are as a MVNO. Of the six networks licensed by Tele2, only one,in Luxembourg, can be found outside of Sweden and the Baltic States. Thus, thegeographical preference in terms of ownership within the EU is marked as is thepreference for control only in Sweden, where it has an 87.3 per cent stake, does Tele2not own the entire company.

There has also been a temporal element to Tele2s strategy. Since 2000, theprimary way through which Tele2 has entered new markets has been by setting upas a MVNO. Of the six EU-member states that Tele2 has expanded into since 2000only one, Luxembourg, has involved 2G network ownership, although its small sizemeant that one of the main reasons for creating a MVNO cost was not an issuehere. It may also be noted that the licence acquired by Tele2 in Finland was for 3Gand it has yet to launch the network; the launch will necessitate the use of anotheroperators GSM network. Moreover, all of the mobile markets that Tele2 has enteredsince 2000 as a MVNO are EU15 member states and not accession countries.However, Tele2s strategy is more eclectic than it may appear to be on the basis of the above since it has a GSM licence in Liechtenstein, has recently acquired aregional GSM licence in Switzerland, has an ongoing operation in Russia and, in January 2005, a Tele2-led consortium was awarded a joint GSM/3G licence inCroatia. It is also allegedly interested in buying ONE in Austria from E.ON italready operates there as a MVNO using the ONE network. It has to be said thatnone of these operations appear to generate many controlled subscribers, althoughthe situation in Russia where Tele2 fails to identify separately its mobilesubscribers is unclear.

When the geographical focus of Tele2 and its use of MVNOs are combined, we canconclude that while it may expand into new mobile markets in the future, thesemarkets are unlikely to be found among the accession countries. As a consequence,

Tele2 is unlikely to play anything other than a minor role in the mobile markets of accession countries outside of the Baltic States.

ConclusionsThe above discussion has focused on the ownership of mobile communication licencesin the enlarged EU. In the course of this a distinction has been made between theoriginal 15 member states and the ten accession countries that joined in May 2004. Therst conclusion that can be drawn is that the largest multiple owners of mobilecommunication licences identied by Whalley and Curwen (2003) have with theexception of Vodafone, only a limited presence in the mobile communication markets of the ten accession countries. Both Tele2 and TeliaSonera have focused on the BalticStates while Deutsche Telekom has concentrated its attention on those EasternEuropean markets that either border, or are close to, its home market. This is notparticularly surprising since liberalisation offered so many opportunities to expandinto the other member states of the pre-accession EU, and the costs of licenceacquisition plus network roll-out were extremely burdensome. Hence, stake-building inthe Baltic region or elsewhere in the former Eastern Europe was as likely to beinuenced by political as much as economic considerations.

Once the date was pencilled in for accession there was the possibility of renewedstrategic interest in the accession markets, but it came at a bad time since most


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operators were struggling with the fall-out from the collapse that began in 2002. Fewaccordingly had the wherewithal, let alone the will, to make expansionary moves. Theobvious candidate was Vodafone, given its resources and its strategy based upon itsinternational footprint, while an alternative contender such as Orange was forced toretrench to the point that it became predominantly a Western European-focused mobileoperator with a presence in an increasingly scattered set of markets. While the need toraise capital for its parent company has abated, Orange, like TeliaSonera, is no longerinterested in playing bit parts and wants either to be a serious player or to exit. Exit isnevertheless easier said than done because of the shortage of buyers, and even the likesof Vodafone would be hard pressed to pay the kind of premium that Orange (or otherpotential sellers) would demand in the present investment climate. Insofar asstake-building is concerned, it does appear to be far more likely that operators will seekto consolidate their positions in existing markets through purchasing additional equityin companies where they already own a stake, but since these are short in supply andwould unquestionably require a considerable control premium to be paid, we can

reasonably conclude that very few of the accession countries will witness ownershipchanges over the course of the next year or two.In this respect it is signicant that, although Vodafone is present in seven accession

countries, it does not own a network in all seven markets. Indeed, Vodafone owns anetwork in just two markets Malta and Poland and is present in the other vethrough the use of Network Partnership agreements. Those markets where Vodafonehas used Network Partnership Agreements are characterised by their small size. Whenthis observation is combined with the propensity of Tele2 to use MVNO arrangementsto enter markets, a nal conclusion is that multiple licence owners are using a widervariety of entry modes than was previously the case. However, a nal caveat is thatwhile Vodafone has opted to establish Network Partnership Agreements in preferenceto the purchase of a network in small markets, Tele2 has made MVNO arrangements inboth small and large markets alike.

Notes

1. For a discussion of the challenges of EU enlargement see, for example, Cottrell (2003) andRachman (2001).

2. For example, one of the licences had been offered but later withdrawn for reasons of non-payment of the licence fee in Slovakia; one licence had been revoked in Portugal and onereturned to the regulator in Germany due to failure to meet roll-out conditions; one licencehad successfully been sold on to another licensee in Austria, thereby reducing the number of licensees; and one licence had to be returned in Denmark as a result of the purchase of one

licensee by another.3. Total number of subscribers multiplied by ownership stake.4. The remaining shares, approximately 8.4 per cent of the company, will be purchased by TDC

itself at a later date.5. Sonera wrote down the value of its investments in Group 3G and Ipse 2000 to zero at a total

cost of SEK39.2 billion in the second quarter of 2002 (TeliaSonera, 2003, p. 53). This wasfollowed in December 2002 by a SEK660m write-down on the value of its stake in Xfera, itsSpanish 3G investment.

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ReferencesCottrell, R. (2003), A survey of European enlargement. When east meets west, The Economist ,

22 November.George, N. (2004), Shadows over an unhappy Nordic marriage, available at: http://news.ft.com,

29 June.Rachman, G. (2001), A survey of European enlargement. Europes magnetic attraction, The

Economist , 19 May.TDC (2004), SBC intends to sell TDC shares, available at: http://tdc.com/about/press/releasesTele2 (2003) Annual Report 2003 , Tele2, Stockholm.TeliaSonera (2003) Annual Report 2002 , Teliasonera Stockholm.Whalley, J. and Curwen, P. (2003), Licence acquisition strategy in the European mobile

communications industry, Info, Vol. 5 No. 6, pp. 45-57.

Further reading

Curwen, P. (2002), The Future of Mobile Communications: Awaiting the Third Generation ,Palgrave, Basingstoke.


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the strategic implications of european union expansion for mobile telecommunications companies

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