Research Notes

The World’s Most Perfect 3-Player Market: Norway’s Lyse to buy ICE and create convergent fixed-mobile operator

This morning Norway’s Lyse /Altibox announced it would acquire mobile operator ICE. Lyse owns Altibox and partners with 33 fiber players, most being energy companies with fiber broadband networks to which Altibox sells access. In the Norwegian market, Altibox has 750,000 fiber subscribers and 525,000 TV subscribers. Their broadband market share makes them almost as big as the incumbent Telenor in broadband. Lyse plans to acquire the main assets of the mobile operator ICE (Ice Communication Norge AS, Phonepartner Norge Holding AS and Ice Retail Holding AS) with a mobile market share of 12 percent for 5.6 billion Norwegian crowns.

For the last 25 years, Strand Consult has studied the mobile market across countries and the role of consolidation. We have followed ICE from cradle to grave. It has not been a fun journey for shareholders. ICE has overpromised and underdelivered.

ICE was born with the remedies of Telia buying Tele2. That was when Network Norway was merged with leftover parts of Tele2 to create what is known today as ICE. The remedies, valuing some 1.5 billion Norwegian crowns, were the prerequisite for Telia to buy Tele2, a sweetheart deal that ICE never fully exploited.

With Norway having Europe’s second highest average revenue per user (ARPU), it is surprising that ICE failed to get greater market share. Telenor and Telia were adept at to defend their position without having price wars. Many Norwegian mobile virtual network operators (MVNOs) have outperformed ICE in attracting customers.

17 Things About the ICE deal.

Here is what you need to know.

  1. Lyse/Altibox is an ideal industrial buyer for the market. Given that it’s in the energy/fiber broadband space, it removes competitive concerns of horizonal integration. The deal creates three convergent operators (Mobile, Broadband and TV) competing for 5.4 million Norwegians.
  2. ICE will not be used by an alternative owner to create disruption/price war in the broadband market. Lyse/Altibox does not want a wireless broadband provider in Norway to lower prices. This deal will create stabile broadband prices.
  3. Lyse/Altibox will combine newly acquired spectrum with its rich fiber footprint and deliver national mobile coverage for ICE cost-effectively. With its wirelines and wireless assets, ICE has a unique and enviable position going forward.   
  4. Lyse/Altibox can extend their fiber with 5G/FWA (fixed wireless access). They can connect new customers and add revenue before they need to lay new fiber.
  5. Lyse is owned by 14 municipalities in Western Norway’s Soer-Rogaland region; Stavanger Municipality is the largest owner with almost 46 percent. These municipalities are likely to speed ICE’s rollout. The question is whether these municipalities will be anticompetitive to Telia and Telenor when they want to expand infrastructure and erect new mobile masts.
  6. On paper, Altibox has more than 700,000 customers; ICE, 700,000. It looks positive for cross-selling opportunities, for example Lyse/Altibox sell mobile service to broadband customers.
  7. Belgium’s Telenet had partial success as an MVNO with its own cable TV network. They acquired mobile operator Base from its previous owner KPN for €1.325 billion. At that time, Telenet had approximately 1 million postpaid MVNO customers. Base had 1.1 million postpaid customers, and together they had a market share of 23 percent. Today Telenet has a mobile market share of 23 percent. Telenet has been successful in selling converged products to Telenet’s TV and broadband customers, but they have not been able to gain market share in the mobile market for the last 6 years.    
  8. Belgium is not the only country where it has been difficult for broadband and TV operators to gain market share in mobile wireless. Ziggo in the Netherlands and Comcast in the USA have the same challenges
  9. Lyse/Altibox offers a price for ICE that appears to be well below what suitors have bid for it in the past, even with debt. So it seems that Lyse is getting a good deal.
  10. ICE faced financial distress with a two-month deadline, so Lyse/Altibox offer comes in the nick of time. It does not appear that there was a bidding war.
  11. The big loser is the Rasmussen Group, which has lost over 1 billion Norwegian crowns on their investment, feigning themselves as hapless investors in of a poorly run telecom company.  
  12. The deal means more competition in the mobile market in the short term. Though Lyse/Altibox is unlikely to attack value in a disruptive way which would eat into their own margins.
  13. Telia will eventually lose approximately 200 million Norwegian crowns in roaming revenues over a period of 2 to 3 years. That’s not a disaster, and maybe the firms can figure out some infrastructure-sharing with Lyse/Altibox.
  14. On the other hand, Telenor may experience increased competition. Lyse/Altibox will market ICE as a serious alternative to Telenor and will claim that they will increase competition in Norway.
  15. All three mobile operators want to keep prices up. Norway’s prices are among the highest in Europe and comparable to Switzerland. However, mobile prices in these countries reflect a high degree of coverage and investment, and their success is all the more impressive considering the mountainous terrain.
  16. The regulatory response remains to be seen and whether it will reflect the Telia/Tele2 deal. Regulators are likely to see the deal as vertical consolidation and hence good for the market.
  17. Telia, Global Connect and some smaller players might ask the competition authorities to investigate and propose remedies as has been seen with other consolidations in Norway.

Strand Consult sees the deal as vertical consolidation which will create a stable and predictable market in Norway where even more investment is welcome. The big question is how the competition authorities will look at the case and whether the smaller players can get some remedies in place that make it attractive to them.

For the European Union (of which Norway is not a member), the case will probably be used as a good example of horizontal consolidation being preferable to vertical consolidation. Strand Consult does not share the EU’s view on in-market consolidation and has found that most competition authorities fail to understand what creates competition in the mobile market. See Strand Consult’s research notes.

The mobile operator perspective.

Mobile industry mergers have been subject to scrutiny by regulators, politicians and even by the public. There is particular unfounded aversion to 4 to 3 mergers. Strand Consult has researched these many consolidations in detail. Despite claims of regulators to the contrary, the general trend for the mobile industry for the last two decades is increasing traffic and decreasing price.

The Understanding 4 to 3 mobile mergers report from Strand Consult combines insights of high-level academic research with the expertise on telecommunications industry economics, engineering, and strategy. It includes an extensive review of specific cases, including an analysis of the aftermath of decision made by regulators.

The purpose of the report Understanding 4 to 3 mobile mergers is to help operators save time and money. Most mobile industry CEOs have never presided over a 4 to 3 mobile merger; this report can fast-track the knowledge. It provides theoretical, practical, and legal perspectives to put 4 to 3 mobile mergers in context and offers an extensive resource of authoritative information on the topic.

Mobile operators need to be smarter in their consolidation strategies; antitrust authorities need to improve their toolsets and measurement techniques; and policymakers need to modernize the standard of review. This report reveals what needs to be done to consolidate the mobile industry in markets around the world.

To find out more and review the table of contents, contact Strand Consult.