Business Watch: Nothing nowhere for EE rivals after ruling

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Dominic White is expecting rival operators to make a legal challenge but says the ruling provides Orange and T-Mobile with a great opportunity

Vodafone and O2 are apoplectic this week because the regulator has just given a huge leg up to their larger rival Everything Everywhere in the race to launch fourth-generation mobile services.

Ofcom says it’s OK for Everything Everywhere, owner of Orange UK and T-Mobile UK, to use much of its existing 1,800MHz spectrum to roll out 4G services as early as next month.

Vodafone and O2, on the other hand, will have to wait as much as a year until the results of the much-delayed auction of spectrum for 4G services. Both companies are steaming with righteous indignation.

“Frankly shocked” is how a Vodafone spokesman put it, adding: “The regulator has shown a careless disregard for the best interests of consumers, businesses and the wider economy through its refusal to properly regard the competitive distortion created by allowing one operator to run services before the ground has been laid for a fully competitive 4G market.”

O2 meanwhile was “hugely disappointed” with the announcement, saying it “will mean the majority of consumers will be excluded from the first wave of digital services. This decision undermines the competitive environment for 4G in the UK.”

I wouldn’t be surprised if some sort of legal challenge follows, given the commercially sensitive nature of the decision, which has been looming for some time. But whether any challenge might have credibility is unclear.

The government has been under pressure to speed up the development of 4G – which can offer download speeds up to 10 times faster than those available over 3G networks. Britain has lagged behind America and much of Europe in this respect.

As a result of Ofcom’s decision to ease the rules surrounding what can be done with the 1,800MHz spectrum, consumers can expect some 4G devices in the shops by Christmas, which looks good for both the government and the regulator.

Ofcom, which consulted the industry before making its controversial decision, accepted that Everything Everywhere would have a competitive head start. But it said that was unlikely to result in an “enduring advantage which distorts competition to the detriment of consumers”.

It may not endure, of course, but the initial head start is an undeniably great opportunity for Orange and T-Mobile to bag the first early adopters of the super high-speed data services 4G will allow. 1,800MHz is viewed by experts as having great properties for 4G services, which promise to revolutionise phone usage as 3G services already have.

But, as Three well knows from its original UK launch on 03.03.2003, being the first mover with a new generation of mobile technology does not necessarily translate into immediate financial success. Back at the turn of the millennium it simply couldn’t get a decent supply of handsets.

It was only when Three started giving buckets of free calls away – rather than data, which is what 3G had long been touted as being for – that it started to gain real sales momentum.

O2 on the other hand launched very late into the 3G market but learned from all the other networks’ mistakes and overtook the competition by securing the iPhone exclusively for its first two years.

Of course, Everything Everywhere is a very different prospect to the tiny upstart that Three was back near the turn of the century. It owns the biggest network in the UK and has huge marketing clout.

Which is perhaps why it has decided to launch an entirely new brand name for 4G services in an effort to corner the market. The brand name is secret for now but it’s seems a pretty safe bet that it will contain the number “4” in it.

Many had assumed that the ridiculously named Everything Everywhere would simply dump the less attractive T-Mobile brand and push on with the more resonant Orange.

That has been the approach of several other recent mobile joint ventures, including Vodafone’s Australian tie-up with Three, which ditched the smaller player’s brand pretty quickly to help save costs.

But a stand-off over the prickly issue has festered between Everything Everwhere’s parent companies – Deutsche Telekom of Germany and France Telecom – which conducted a brand review last year.

Of course, France Telecom and Deutsche Telekom have big balance sheets their companies can call on and a long and proud history with their mobile brands, unlike Three when it started.

So they are poised to offer their fourth brand into the market. One wonders whether it could eventually replace both the Orange and T-Mobile brands if it proves successful.

Perhaps it might even ultimately replace Everything Everywhere, which its chief executive Olaf Swantee, who replaced one of the men who helped dream up the name – Tom Alexander – has reportedly admitted is “silly”.

Back in February, France Telecom’s chairman and chief executive Stéphane Richard said that a shift to a “unique, single brand [was] the only way to really maximise the synergies from our joint venture.”

And reports suggest that Everything Everywhere has declined to say whether all of its existing brands will still be around in a year’s time.

It would certainly help to resolve their embarrassing impasse over what to do about their three, soon to be four, brand names, the continuing use of which is surely preventing some of the full potential synergies from the merger to come through.

One thing is for certain: it had better be a good name.

Three, owned by Hutchison Whampoa of Hong Kong, has reason to cheer because it has picked up the additional 1,800MHz spectrum that Orange and T-Mobile have been forced to ditch in order to get approval.

The deal means it will get fewer minimum guarantees than if it enters the auction with no more spectrum than it has had for the past year.

Meanwhile, Three this month reported impressive service revenue growth of 14.2 per cent for the first half, winning plaudits from analysts for winning around 15 to 20 per cent of market contract gross additions.

“That is a very impressive figure given that it… eschews the third-party channels such as Carphone Warehouse and Phones 4U,” wrote Enders Analysis.

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