TDC to launch pan-European MVNO under the easyMobile brand

Haji-Ioannou has been stating his intention to launch a mobile network since February 2004 and has since worked to find the business model for the mobile market that best fits the easy brand. This he identified in Telmore, the Danish MVNO owned by TDC, which he believes provides the best business solution for easyMobile. The easyGroup has finalised a brand licensing agreement with the Danish network operator as a result of which easyMobile will exist only as the name of an MVNO that will be entirely set up and operated in each of the 12 markets by the Danish operator TDC. TDC has been awarded with a licence for the use of the 'easyMobile' brand in 12 European countries: the UK, France, Germany, Italy, Spain, Greece, Portugal, Hungary, the Netherlands, Ireland, the Czech Republic and Slovenia.

The idea of creating a joint venture, which had initially been considered as one possible option by the easyGroup, has been dropped in favour of a less capital-intensive investment in the form of a brand licensing agreement. More specifically, easyGroup's involvement will be limited to the promotion of the brand name easyMobile, while it will also profit from royalties received from the Danish operator.

There are as yet no concrete plans for the actual launch of easyMobile in each of the countries specified in the licence agreement, although the operator has declared its intention to introduce services in the UK market by the end of 2004.

Positioning: the easy group philosophy of simplicity and convenience

Telmore, the most successful Danish MVNO, provides the inspiration for the business model that easyMobile will adopt. Telmore's business model is already similar to the concept applied by the easyGroup companies: each of the operational processes, from procurement to logistics, customer relationship management (CRM) and distribution is simplified, atomised and managed over the web as far as possible. As such, easyMobile will be able to minimise costs and position its service as the cheapest offering in the market.

The no-frills operator will offer a service that excludes high-tech, high-end (mainly data oriented) services and will stick merely to the minimal requirement of supplying SIM cards and top-ups.

Handsets will not be provided by easyMobile but the company is confident that subscribers will find their own ways of acquiring them. As such, easyMobile will rely on the expectation that a substantial proportion of its customers will be churning from rival operators, bringing their existing handsets with them. Customers have often been required to sign a 12-month tie-in contract with a 'traditional' operator that has enabled them to acquire a heavily subsidised top-end handset. easyMobile is hoping that at the end of such 12-month terms customers will withdraw from their contracts, retaining their handsets while embracing the cheap tariffs and straight-forward approach of easyMobile.

The above acquisition strategy proved to be successful when applied in the Danish market by Telmore and Haji-Ioannou has expressed his confidence that it can be successfully applied more broadly. However, it is very likely that, even if easyMobile does not sell handsets, subscribers will be offered the opportunity to purchase handsets from one of the easyGroup websites, such as easyValue (the company website for online shopping comparisons).

It is understood that easyMobile's prices for SIM cards, voice calls and SMS will be extremely low. That is the selling point that will appeal to unsophisticated but well-informed price-conscious customers. The profile of the typical customer will fit the youth and student market segments.

Telmore business model in the UK: is it too late?

easyMobile has a chance of success in most of the market it aims to enter but its business model is unlikely to apply equally successfully in all 12. The concept introduced by Telmore has proven to be extremely successful in the Danish market: in less than two years Telmore acquired more than 10% market share and it now accounts for one quarter of TDC Mobil's subscriber base. The formula seems to be easy and very appealing. If easyMobile applies the same model and acquires the same market share that Telmore has in its own market, easyMobile could soon have nearly 5 million customers. While the model may have worked in the Danish market, however, condition in the UK market are substantially different. Furthermore, the timing is different and the UK voice market is already at an advanced stage. Some of the benefits of Telmore's strategy may simply no longer apply:

• The advantage of moving first: Telmore started operating in October 2000, when the Danish market was far from saturated. Furthermore, it enjoyed the advantage of being the first MVNO in the Danish market. When easyMobile enters the UK market it will face fierce competition from the already well-established MVNO Virgin Mobile.
• Strategy coordinated with network provider: Telmore's subscriber base started to increase substantially after is was acquired by TDC. This indicates that one of the strengths of Telmore's strategy was its accurate customer segmentation, which was made easier by sharing information and coordinating with its parent company TDC. easyMobile will find it difficult to finalise MVNO agreements in the UK and is unlikely to benefit from the support of a single network provider as Telmore did.
• Customer acquisition: as described above, easyMobile's acquisition strategy largely relies on the assumption that customers will have already procured their handsets by taking advantage of the subsidised promotions of the incumbent operators. The strategy worked well in Denmark (applied by Telmore) where the tie-in period for a contract is six months. However, in the UK market subscriptions have an average duration of 12 months.
• Internet channel: selling SIM cards and top-ups exclusively on the internet has the clear advantage of reducing subscriber acquisition costs (SAC). However, easyMobile is not the only operator adopting this strategy: virtually all UK operators are diverting new subscriptions and upgrades to their internet channels.
• Potential litigation over the use an orange-coloured brand: easyMobile will brand its services with the orange colour that is used across the easy group, which happens to be similar (albeit of a different shade) to the orange branding used by France Telecom's mobile subsidiary Orange. It is possible that France Telecom will try to prevent easyMobile from using the colour orange on legal grounds.
• Tariffs: the cost of airtime in the UK mobile market is expected to fall considerably during the rest of H2 2004. Increasing competition and reduced termination charges imposed by the industry regulator are driving down prices. With margins being substantially reduced incumbents are expecting to sustain their revenues with innovative services. For easyMobile, relying only on low-margin services means that its business model runs the risk of being unsustainable.

Potential difficulties establishing agreements with operators

For each of the 12 countries covered by the brand licensing agreement, TDC is negotiating MVNO agreements with local network operators. Network agreements will be finalised with more than one operator. According to the easyGroup licensing agreement, TDC is free to negotiate access with any of the local networks. The easyGroup has indicated that the negotiations are at an advanced stage but TDC has not yet revealed the names of any of the companies it is negotiating with.

Each of the markets that easyMobile aims to enter has its own peculiarities and differs from other markets on both the supply and demand side. Indeed, different countries' regulatory frameworks differ significantly. As such, it is likely that the business model will differ in each national market. In some markets TDC will find it more convenient to establish a Service Provider business contract (buying wholesale minutes and selling at retail prices). In other countries it will be more convenient to launch as an MVNO, deploying some parts of the network itself. While it is too premature to assess the potential of each of the 12 markets until more information becomes available, it is expected that in those markets that are characterised by higher prices and lower penetration rates (notably France), the new enterprise will have a greater chance of success.

easyMobile is unlikely to have an 'easy' time in any market, however; operators are likely to choose to develop their own low-cost business models rather than granting space to a new entrant. (In Denmark TDC developed its own budget mobile business before acquiring Telmore.) Consequently, TDC will face a difficult task in finalising agreements with network operators across the 12 European countries covered by the brand licensing agreement