Europe’s Big Boys Partner for Big Business

UNDER A WIDE-RANGING ENTENTE, two of Europe’s largest integrated operators are redrawing the rules of telco partnership, according to Informa Telecoms & Media team analysis.

Deutsche Telekom (DTAG) and France Telecom-Orange (Orange) jointly aim to accelerate top-line revenue growth by collaborating in hot service areas like M2M, but the partnership also promises to streamline the operational costs of delivering services to customers including more than 300 million mobile subscribers and 3,000 multinational corporations (MNCs) worldwide.

Covering cross-border M2M, joint vertical industry solution development, network sharing, and equipment standardization, the partnership suggests a fundamental departure from previous – largely opportunistic – telco-to-telco collaborations.


WHAT’S NEW

Telco alliances aren’t new. But Informa Telecoms & Media believes that the DTAG-Orange rapprochement illustrates new thinking and tactics in the fight for revenue growth: 

- Verticalization is a primary competitive thrust: The telcos are pouring effort into addressing industry-specific needs in order to build sustainable differentiation;

- Global data roaming is a strategic imperative: The telcos see new revenue streams in global M2M services that are dependent on seamless interconnect and network responsiveness;

- Infrastructure sharing can accelerate top-line growth goals: The telcos recognize that proactive infrastructure sharing not only reduces opex, but also helps speed launch of new service innovation.
SCOPE 

- M2M: Jamie Moss, Senior Analyst, Mobile Content & Applications, states that the DTAG-Orange partnership is a bold move:

“It will rival KPN, Telefonica, Telenor and Vodafone’s efforts to provide cross-border M2M services to MNCs. The importance of international data roaming agreements has grown dramatically over the past 12 months as desire for services like global fleet tracking grows.
Equally, M2M MVNOs like Amazon’s Kindle also illustrate the need for cross-border service delivery in the consumer segment. Together, the operators hold mobile license in 54 countries across Wester and Eastern Europe, Africa and Latin America – an attractive packaged deal for connected device vendors.”

- Vertical Industry Solutions: Camille Mendler, Principal Analyst, Enterprise Verticals, asserts that verticalization is not a passing fad for either DTAG or Orange:

“The partners identify e-health, automotive fleet and in-car applicaitons among solution growth areas. In addition, there’s an intent to develop ways to tap into home entertainment. But there’s a huge strategic – and cultural – shift involved in the move from selling horizontal technologies – like IP VPNs – in generic ways, to applying horizontal technologies like M2M in highly verticalized contexts. Potential restructuring of sales and marketing plans will be needed. Cross-company integration of cloud assets may also be a potent differentiating move.”

- Network Sharing: Kris Szaniawski, Principal Analyst, Networks, believes that the partnership will bolster international network reach, but also implies that further RAN sharing is on the cards:

“Along with 3 UK, DTAG and Orange are involved in the UK-based MBNL RAN sharing and backhaul joint venture. The joint venture uses BT Wholesale, Ericsson and Nokia Siemens Networks for managed services. Multi-country RAN sharing is an unproven model, yet offers considerable scope for cost efficiencies. Informa estimates that approximately 40 percent of MNO network opex is attributable to RAN operations.”

 -Borderless mobile access: Julian Bright, Senior Analyst, Networks, notes that providing seamless cross-border WiFi and 3G access for customers is highlighted as a priority:

“The partners are focusing on improving roaming agreements, but also the ability for customers – primarily mobile employees – to download large data files and access multimedia services. This suggests that new service bundles for enterprises and SMBs will be under development.”

PAST PARTNERS

DTAG and France Telecom were previously partners – along with Sprint – in the Global One alliance, which was one of several super-carrier alliances that were launched and foundered in the 1990s. Others included Unisource and Concert.

Those alliances were created to deliver a seamless network footprint to MNCs, much as the airline industry today offers flight code-sharing across carrier alliances. In telecom, operator alliances failed partly due to various partners’ conflicting geographic expansion aspirations and poor operational integration.

Today the anchor partnership of DTAG and Orange could integrate more operators in the future, but with a different mindset and service portfolio to market.

IMPLICATIONS

  • Expect high activity in securing data roaming deals: Robust and comprehensive data roaming agreements underpin new top-line growth pursuits. MNC-class M2M services need flawless management of connected devices across multiple geographies. These enterprises demand continuous throughput, prioritized data transport and guaranteed service availability – whatever the technology in use.

 

  • Expect vertical solution launches to multiply: Jointly and severally DTAG and Orange are stepping up vertical solution development. On February 9th, for example, DTAG enterprise arm T-Systems launched cloud solutions for the energy industry. They will not be alone. Verticalization is the strategy du jour to break free from the margin constraints of selling generic enterprise services.

 

  • Expect the appearance of multi-country managed services RFPs: Sweeter and fatter managed services deals are in the offing as more telcos follow DTAG and Orange’s lead. Telcos often need impartial operational management as they pool and share IT and network infrastructure assets. Competition for that management role include Alcatel-Lucent, Ericsson, Huawei, Nokia Siemens Networks, but also IT and BOSS vendors including Amdocs, Atos Origin, Convergys and IBM.

 

  • Expect service persistence to become synonymous with customer experience: WiFi offload is emerging as a complex challenge for operators. There’s a network management issues, but also service availabilty implication. Joining resources from both DTAG and Orange could reduce costs, but also enhance customer experience, at least in terms of service coverage. Many services are now highly dependent on WiFi capillarity.

 

RISKS & RECOMMENDED ACTIONS

  • Execution risk is staggering: Both partners are addressing this with a clear and potentially manageable set of priorities. Before expanding partnership scope, they need to focus on quick wins in identified segments to build credibility and momentum for the partnership, both internally and externally.

 

  • Money must be spent: Neither DTAG nor Orange has disclosed what they will invest to execute on their various layers of partnership. But dedicated investment is a requirement to proceed.

 

  • Empower partnership champions: Partnerships can come and go. What makes them succeed are clear goals and concerted executive support. Just as they do for MNC accounts, DTAG and Orange must establish a governance structure to ensure their alliance meets its diverse strategic and commercial goals.