Too Much Virtual Competition

We've wondered before what happens when mobile virtual network operators become entrenched rivals to the network operators from which they buy capacity. While some NOs are happy to become "carrier's carriers", it looks like some don't know quite what to do, so they buy out the successful MVNOs. This week, in Finland, Elisa is looking to take over MVNO Saunalahti, while Nordic giant TeliaSonera is looking to buy out Norwegian virtual operators Sense and Chess. NOs taking out MVNOs isn't new, but the prices seem to be on the rise: when TDC in Denmark acquired Telmore in January 2004, it paid 88 euros per subscriber. Saunalahti in Finland is paying about 680 euros, and TeliaSonera 563. Prices for NOs are a bit higher, but don't always command the premium one might expect: when TeliaSonera bought Orange in Denmark recently, it paid almost 1000 euros per user, and Cingular paid about $1850 per sub (a price widely held as well above its worth) for AT&T Wireless. The real challenge for NOs, though, is what they do with the MVNOs post-buyout. TDC has been very smart and turned Telmore into a service provider for other MVNOs, such as EasyMobile in the UK, but it looks like Elisa's interest in Finland is to try and stop a brutal price war of which it's generally been on the losing end, and TeliaSonera just wants to gain market share in Denmark. Customers leave NOs for the reasons MVNOs provide them with so much competition -- low prices and better service. So what's to stop these virtual networks' customers from running to another MVNO after the buyout, if their pricing or services are changed? Look for more of these deals -- and confusion -- to be coming out of mature markets.

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