Monday, 9 February 2009

3 Australia...first victim of the credit crunch?

The big news this morning is, of course, the announcement that 3 and Vodafone would be merging their operations in Australia. The new 50/50 JV will be called VHA and will market its products and services under the Vodafone brand, although will retain exclusive rights to the 3 brand in Australia. Full details can be found here.

Surprised? Not really. Vodafone has trailed both Optus and Telstra in 3G coverage and technology upgrade path for a while. Meanwhile, 3 has never really got to grips with the fact that it doesn't have access to 850MHz or 900MHz spectrum. The other operators have been aggressive at deploying HSDPA at those frequencies, taking advantage of the technology-neutral approach adopted by the Australian regulator. 3's 2100MHz spectrum really can't compete on base-station density and indoor coverage. That make's it increasingly difficult for 3 to gain traction in mobile broadband, a market that it had made its own in Europe.

In a recessionary environment it is inevitable there will be some consolidation. Vodafone and 3 need each other. So it gets a thumbs up from me.

I don't think it represents a statement of intent about other 3 holdings. The approach has always been pragmatic. If there's a good offer on the table, take it. But good offers depend on specific circumstances. For instance, Hutch sold out of India because Vodafone we're so keen to diversify into emerging markets that they were prepared to put a good offer on the table. HWL could see themselves being squeezed in Australia, so they took the logical course of action.

There are a couple of minor niggles for me though. It looks as though the new JV will abandon the 3 name. Now that mobile has reached saturation virtually everywhere MNOs will thrive on segmentation and what better way to do it that through an already established brand? Abandoning that brand doesn't seem a sensible move to me. Secondly I wonder about the logic of Vodafone taking only a 50% share in a company in which they contribute 2/3 of the subscribers (albeit with a AUD500 million pay out as compensation for their reduced shareholding). They've sold out of many minority shareholdings and they've effectively adopted one here. Still, it's a minor issue and one that may have no implications for operations, depending on the details of the agreement thrashed out with HWL.

Another issue is the implications for 900MHz refarming elsewhere. Evidence from down under would suggest that any 2100MHz operator that finds itself unable to deploy UMTS at 900MHz will struggle. It is critically important that greenfield 3G operators get hold of refarmed spectrum. Otherwise their days will be numbered.

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