Jan 24th 2014

Vodafone deals with the devil to compete with BT

iPad Children TechnologyEarlier this week it was revealed that Vodafone and BskyB are holding “high-level talks” to discuss a way to challenge BT’s dominance in the UK broadband market. This could lead to Vodafone offering Sky’s film and sports content to its customers. There are also rumours flying around about collaborating on a quad-play service – something which is very popular across Europe.

So why are Vodafone looking to partner with BskyB and take on BT?

Well, BT has been gunning to become the leading triple-play provider. It has aggressively rolled out fibre up and down the UK, spending more than £3 billion to make it available to 90 per cent of homes. BT has also been looking to improve its TV offering, launching its first TV channel BT Sport and spending £900 million on football rights. Clearly BT has some cash to throw about and is making telecoms operators nervous about the company becoming a quad play, due to the spectrum they purchased in 2013.  In addition, the company currently has a multi-year MVNO agreement with EE, although repeatedly stating that its mobile strategy is targeted at enterprise customers, it wouldn’t be difficult to expand its offering to include a consumer mobile service.

So, Vodafone and BskyB are nervous.

They are nervous that if BT does enter the consumer market, they wouldn’t be sitting quite so pretty on top of their respective perches. Vodafone doesn’t offer TV services or fixed line broadband, missing out on some key value added services that BT could bring to the fore. With BskyB, the threat that BT could offer a quad-play is enough. Having one contract for mobile, fixed line, broadband and TV services could persuade BskyB customers to jump ship as BT would offer a more convenient service – one provider, one contract, one number to call, lots of services, plus I think it’s cheaper than BskyB.

Due to this threat, it makes sense that a leading mobile operator and TV, fixed line and broadband provider would join hands to fight against what was once the leading telecoms provider in the world. However, it probably isn’t just BT they are worried about. I mean, take a look at Virgin and Deutsche Telekom in Europe. The quad-play model is at the forefront of everyone’s collective mind as they try to create a service that appeals to the mass market. I know it would appeal to me to get my mobile, home phone line, broadband and TV all through one provider. If done right, it would greatly reduce the hassle and the number of bills I get. Plus, you would think that you would have access to all their services at the touch of your fingertips.

Let’s pretend BT does enter the consumer mobile market again. I would have access to all its Wi-Fi hotspots on any device, I could receive my TV package from any device and I could pretty much make a call from any device. I’m always connected and “always entertained” (I’m going to trademark that before someone nicks it!).

So, in my opinion, Vodafone and BskyB are clearly toying with the idea of jointly providing a quad-play.

The question is……who wears the trousers in that relationship? Who will take the leading role. It’s apparent that there are obvious benefits for both – Vodafone subscribers get access to more value added services and BskyB gets access to Vodafone’s customer base. But I can’t see BskyB giving Vodafone too much for free. Once they have access, which they already have with their 4G subscribers, what additional benefit does Vodafone provide them. And why don’t they just go ahead and set up their own MVNO – I’m sure Mr Murdoch has oodles of cash to throw around. On the other hand, why would they? OTT services are all the craze. You don’t need to spend on creating or ‘renting’ a mobile infrastructure. You can use those already available for free. You just need to encourage subscribers to use your services on their different devices. Not really a hard task. What’s in it for BskyB then? Subscribers and a nice new revenue stream.

Has Vodafone panicked and dealt with the devil before the UK market gets presented with its first quad-play service? We will have to wait and see.

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