Swedish incumbent telco Telia has teamed up with NetCom to build a 3G network.
Swedish incumbent telco Telia controversially failed to win a 3G license in its home market last month. It is taking legal action to challenge the awards decision, but it has also agreed to team up with rival operator NetCom, which did win a license, to build a network. A joint venture company will build and operate the network; the parents will continue to compete to attract customers.
As the dominant operator in Sweden at present, it is imperative that Telia can provide 3G services. In the long run, it needs to migrate customers to 3G to maximize its revenues. In the nearer term it needs 3G to deal with capacity shortages on its GSM network. A joint venture with NetCom looks like a good way of doing this.
In any case, building 3G networks is expensive. By sharing networks, companies can save huge amounts of money. Indeed, many operators throughout Europe will be sharing masts, partly for financial reasons. Given that unlike GSM, 3G capacity is unlikely to be a problem in a market the size of Sweden, license sharing will not substantially diminish either operator’s services.
However, the move does leave Telia and NetCom operating in a market with nine million people and five operators. Fierce competition will drive prices down and make returns harder to make. The bad PR stemming from Telia’s failure to win a license will further exacerbate this situation: consumers may be reluctant to trust a company that their government believes is not up to the job.
Operating the network could also pose problems. Telia and NetCom will have different aims and different desires in terms of how to build and run the network. For example, if one company wants to target high-spending business customers, it may choose to site a high density of masts in central Stockholm to offer high-bandwidth applications. The other partner may want to choose a different strategy.
Overall, the deal is probably the best move Telia could have made having been denied a license, and it means that NetCom will not have to raise so much money in difficult market conditions. However, Telia is still left in a worse position than any other dominant European operator.
