Vodafone’s reported, but unconfirmed, intention to acquire Tiscali raises a whole series of questions in a market place that seems short on clear strategic answers.
The proliferation of companies offering fixed broadband is unsustainable and it is doubtful whether the market can continue to support such a large number of players. As is a feature of many markets, high profits attract competition and reduce prices to end user. Consequently, those markets reach the point where pricing levels are uneconomic, given the ongoing high cost of subscriber acquisition and the decreasing unit subscriber value as the market expands. Fixed broadband, in its current state, is a classic example of this scenario. Prices have fallen to the floor, the era of cheap fixed broadband is coming to an end and it was only a matter of time before a wave of consolidation started. With a 12% share of the fixed broadband market in the UK and a broader European presence, Tiscali is clearly one of the more attractive targets for companies looking to build presence in the market or to expand an existing customer base.
It is important to remember that the fixed broadband market does not exist in isolation – mobile broadband is now gathering pace and the long-predicted data wave is upon us. Many of the stumbling blocks that had prevented the market from developing, are now disappearing. With faster speeds, more network capacity, simpler propositions, attractive pricing packages and the availability of plug-and-play devices and dongles, mobile broadband is taking off. So, if a mobile operator already offers broadband on its own networks, why does it want to invest in fixed broadband? This question has a wide range of possible answers and leads to speculation about an individual company’s strategy.
As the telecoms market evolves, players from the fixed and mobile camps are attempting to position themselves as full-service organisations by developing portfolio offerings spanning triple and quadruple plays and chasing the ever-elusive convergence market. MNOs may regard the acquisition of a fixed broadband player as:
- a basis for developing a broader fixed–mobile portfolio
- an opportunity to learn more about the broadband market in general
- part of a longer-term strategy – securing a position in the fixed broadband market now could prove more cost-effective than watching, waiting and acquiring later. This strategy could also neutralise some fixed broadband competition in the process
- a stepping stone to migrating a fixed customer base to wireless. With mobile voice minutes starting to overtake fixed, maybe mobile broadband will follow the same route?
Whatever strategy MNOs choose to pursue, they cannot afford to divert too much attention away from mobile broadband at present. MNOs must include mobile broadband as a fundamental building block in their strategic thinking, and they should have a clear view of their motivations towards a fixed broadband play.
