13 December 2006

The Web
Business Today

So what?

At the end of the day expect an integration of markets and networks

Lately, the local media has been blessed with a number of adverts that placed into perspective the grouping of products relating to telecommunications. It all started with DataStream, the provider of Maltanet, which offered a package of Broadband with Digital TV. However, what was innovative was the fact that the TV service was being provided by a non-related company.
Indeed, it was considered strange how a subsidiary of the local telecommunications incumbent was offering a service provided by a potential competitor. DataStream was a subsidiary of Maltacom, that is the holder of an unutilized, as yet, Digital Terrestrial TV license. This was a strange move, unless of course this was the first step of things to come. It had been mooted for a long time that Melita Cable TV, another heavyweight in the local telecommunications scene, was on the verge of launching its own version of telephony. In anticipation to this event, Maltacom tested the waters by offering potential customers the possibility of purchasing one of its products: broadband and benefiting from a favourable rate for a TV service provided by a third party. Consumers are well versed that Maltacom is the provider of telephony and Melita being the Cable TV provider. So a move from one player into the traditional territory of the other was the start of a poker game where the stakes are high. And this is what exactly happened!
So as not to be outsmarted, Melita teamed up with a competitor of Maltacom to offer its customers mobile telephony, the only service it is not licensed to provide. So now the consumer has a choice for having one sole provider of telecommunication services. Maltacom already was able to offer fixed voice telephony, as well as broadband and mobile telephony through two subsidiaries. Added to this, TV was being offered as provided by a third party.
On the other hand Melita provides its customers with TV, broadband through its subsidiary, a recently launched fixed voice service and now through an affinity the mobile phone service provided by global giant Vodafone. It was the only exit route for Melita to be a fully-fledged quad-player in telecommunications since it had lost out in winning one of the alternative wireless network spectrum services last year. On the other hand, Vodafone is a household name for mobile telephony, but in Europe it has lately been experimenting with fixed telephony and broadband. So why is it so enticing for a telecommunications operator to provide additional services to their customers? The rationale is that a consumer will benefit in better rates and service if all is provided by one supplier. Imagine, if you have an enquiry on any one of your fixed voice, mobile, TV or broadband services, you have to just contact one customer care point. Moreover, expect to receive one bill for all the services. But is this really the case?
In Malta, we have for the last decade experienced telecommunications competition in different doses. The first wave was in the mid-nineties when the internet market was liberalized. Here, no less than five enterprises started to provide this service utilising the only fully-fledged network owned by the former government-controlled entity Telemalta. Melita also had a network but for the first years it was only interested in building up a national network. When this task was nearing completion, the Cable TV operator just snapped up an existing licensed internet provider and joined the fray. Only that its fully owned subsidiary On Vol, was now in a position to provide its customers a similar broadband experience via two networks – the Telemalta network and that of its parent Melita. The internet providers then teamed up with Maltacom to provide the service through ADSL. At the same time, government realised that it had an important role to play and set up a regulatory body. The latter spearheaded a telecommunications liberalisation plan, which saw the emergence of Go Mobile as the second mobile operator, and other parties interested in the TV and fixed voice market.
But whereas there was no player in the TV market that took an early plunge to challenge the incumbent, the same could not be said for voice telephony. Hot on the heels of the liberalisation of mobile telephony, the regulator announced the opening of international telephony. By now technology was advancing much faster than the legislation being enacted and a score of internet service providers started offering international telephony through Voice-over Internet Protocol, colloquially known as VOIP. The consumer did not give a hoot of the technology but gladly embraced the ridiculously low rates on offer. The ISPs now turned quasi-voice telephony providers, offered consumers choice, price and a different product by a prepaid card model. They abandoned their quest to fast-track the provisioning of broadband for the quick cash generating voice service. A battle that was initiated by the ISPs to open up the Melita infrastructure for third-party provisioning of broadband was abandoned but followed in earnest by the regulator.
Until now this issue is still unsolved, therefore strengthening further the two network owners. Maltacom continued to provide fixed telephony and exploited its network for broadband provisioning through a number of ISPs. On the other hand, Melita continued to strengthen itself by providing more of the same until it decided to invest and upgrade its network for voice. Against this scenario, Vodafone faced competition from a Maltacom-owned subsidiary and the wireless market exploded. Even though the market has been shared in numbers by the two mobile operators, the revenue split shows a different picture. And Vodafone invested further to have its own international gateway and bring it self-sufficient for its international voice requirements. Against this scenario, the regulator was carrying out market studies mandated by the European Union and at the same time putting into place the legislation and mechanism for mobility of numbers so that the consumer could choose its network of choice for voice telephony based on the price it suits him.
Summer 2005, saw the first step of what I consider the integration of service providers across different markets. The first step was made by a group of ISPs that teamed up to bid for a fixed wireless spectrum license. Immediately, Maltacom offered its customers its own VOIP service branded “TEN 21”, which is a post-paid service that wiped out the market share gained by the various ISPs through their pre-paid service. Starved for cash and experiencing slow growth in an over-crowded broadband provisioning market, the ISPs were left with not much leeway than to see if they could enter the local voice market. One new service was born called SKY.
Otherwise, I predict that the ISPs would go back to take on their battle for the opening up of Melita’s network and score brownie points on wholesale pricing to widen their profit margins. It was a godsend that Malta became the point of presence for a number of betting firms that needed international broadband provided by Maltacom and Vodafone but brokered and serviced by ISPs. This put some sanity into financials of ISPs that had been around now for the last decade.
And what is the current state of play for the other telecommunication providers? Vodafone will attack the “fixed” voice and broadband service next year by deploying a new technology utilising the license spectrums it has under the 3G and fixed-wireless headings. Melita will continue to defend its TV quasi-monopoly status but gearing itself against a price war from Maltacom by starting off a lower priced fixed voice service. Maltacom will take stock and accelerate its plans for TV provisioning. Snapping up an existing minor player is a way of doubling its capabilities and at the same time copying the formula adopted by Melita some years back when it joined the Internet provisioning market.
At this stage we will have two incumbents clashing head on into each others’ territory but vigorously defending their traditional market and customer base.
And how does all this affect the consumer? Will the single telecommunications service provider model catch on as the operators join forces or integrate? Time will tell, but surely the technology will service the needs of consumers. At the end of the day expect an integration of markets, convergence of networks with mega-providers for the majority of consumers. Niche players’ legacy of brands will survive only if they differentiate themselves.

Stephen Muscat is a
former CEO of Maltacom plc

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