Research Notes

Denmark: the mobile operators “Hell on Earth”

Denmark: the mobile operators “Hell on Earth”. The new report “The Moment of Truth – A portrait of the Discount Mobile Operators’ success” by Strand Consult describes shows how eight Internet-based Mobile Operators have turned the Danish mobile market upside down.

The report that examines the historical development, the extremely hard competition they have created, how this has affected the market shares, the resulting fall in prices pr. minute and SMS prices and finally last but not least, how churn has exploded as a huge number and share of subscribers terminate their contracts.

The new reality that Danish Operators have to face is that:
-The price of a mobile minute has in only 6 months dropped from 0.17 Euro to 0.09 Euro
-The price of an SMS has fallen from 0.07 Euro to 0.03 Euro
-The price of a subscription has fallen from 6.7 Euro to 0 Euro
-Mobile consumption has not risen during this period
-The last two years growth in the mobile market has been decimated

4 years after the UMTS auction disaster hit the European operators and a whole sector thought the market was finally turning, a new financial disaster has struck right in the centre of the mobile market. Today the number one selling point is simply the price and most operators have passively chosen to copy and thereby follow the discount service providers’ concept – instead of taking up the fight. The idea was to create a discount supermarket that competes against your own supermarket, a good enough idea until all your customers find out that they can save over 60% by simply switching to your discount supermarket.

The results are very apparent. The money is pouring out of the operators’ cash boxes and the large revenue from subscriptions will most probably disappear over time. Prepaid customers are the first to switch to the new discount players and together with the enormous price reductions we have seen in Denmark this will have consequences for both the mobile operators and their employees. The whole sector is standing on the brink of the point of no return!

An analysis of Denmark’s leading mobile carrier TDC Mobil by Danish broker Danske Equities, showed that 37 percent of TDC Mobiles revenues are at risk.

The headcount at the two largest Danish discount operators, Telmore and CBB are 70 and 45.
They spend next to now money on marketing, do not subsidise handsets and let customers sign up for, and pay for their service on the Internet.

In a market of only 5.5 million people, Telmore and CBB, the two largest Danish discount operators, has signed up half a million, and 200,000 subscribers. Both companies are turning in healthy profits despite low prices and thin margins.

It has been said many times through the past years that the Danish mobile market is one of the toughest in the world. If that was true 3 years ago, then we have absolutely no idea what to call the competitive situation today – 5 mobile operators each with their own network and 4 large serious service providers fighting over a mere 5.5 million Danes mobile phone usage. This is a situation that you will have difficulty-finding elsewhere in the world… If there is a mobile “Hell on Earth” it is undoubtedly in Denmark.

The barriers to get into the market are low for the virtual discount operators. With two to three million euros they can be in business.

Countries with four or more network operators, which besides Denmark includes the Netherlands, Britain and Belgium, are likely to be the first to see these new discount operators.
The smallest network operator in the Netherlands, Telfort, has already opened its network to discounters.

Operators who have to build and maintain networks, could deny or stop selling minutes to the discount companies, but heavy competition, and the stock markets demand for growth, has made it difficult for them to resist the temptation to sell bulk minutes to fill up capacity.

There is no doubt in our minds that the different web-based mobile operators have already had an enormous influence on the attitude and buying patterns of the mobile customers and will thereby have a big say in how the mobile markets will develop – and who will be making money – in the future. The web-based discount mobile operators are definitely here to stay, so now the question is not whether they will affect your market – but just how fast, widespread and hard they will hit.

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