BIS Mackintosh sees a big consolidation among UK cellular service resellers this year, but some big players in the market aren’t so sure, Mark John finds.
Of the 50 or so cellular radio service providers currently active in the UK market, fewer than half will survive beyond the end of this year, forecasts a report conducted by BIS Mackintosh Ltd, a division of Nynex Corp, as part of its continuous information service on mobile speech and data issues. The report goes on to predict that the rationalisation the industry has experienced for the last few years is likely to accelerate into 1990, as smaller profit margins and the advent of Groupe Speciale Mobile digital cellular make the smaller operator more attractive to larger companies seeking to gain entry into the resale market; activity on the mergers and acquisitions front is likely to be further stimulated by a drop in the average price paid for the resellers: for 1989, BIS put the going rate for a company at around UKP1,000 per subscriber – an artificially high price that will fall to around UKP500 per subscriber through 1990. When asked what it thought of these findings, Martin Dawes Communications Ltd, one of Vodafone’s largest and most aggressive resellers, argued that profit margins need not necessarily fall – it all depends on the amount of commission that a reseller is prepared to pay to its dealers, and at the moment, the trend is towards smaller commissions, and a more responsible attitude towards customer service.
Commissions falling
But how does the dealer feel about the fact that his commissions are falling, and yet he is being called upon to provide a greater level of service? Martin Dawes reckons that dealers are relatively happy about all this, despite the fact that quick killings are more thin on the ground, because it means that they can start marketing the service properly, and do not have to operate in the cut-throat environment that once characterised the market. Normally one of the more acquisitive players in the industry, Martin Dawes reckoned that we are not about to see a spate of take-overs, and that the market can continue to support the current number of resellers; it did, however recognise that there is a number of small, successful operators that would appear attractive to the larger companies – especially since it claims these companies can be acquired at a price based on UKP500 a subscriber right now. BT Mobile Communications accepted the BIS view that further rationalisation is likely, but stated that BT Mobile has not, and will not make any acquisitions in this field despite accepting that resellers are likely to be more attractively priced in the near future; it says it is not involved in the free phone scenario, where customers are being offered phones free of charge by companies willing to increase their subscriber base, and argues that the companies that are most open to a take-over have a history of mistreating their customers, and we are not interested in taking on those sort of customers. Colin Street at Talkland Ltd, a major reseller for both Vodafone and Cellnet which has just beaten BT Mobile Communications in the race to be the first reseller with 100,000 subscribers, also agreed with the drift of the BIS findings, blaming high investment costs for the on-going process of industry rationalisation, and admitting that profit margins were down independent estimates currently put margins on airtime resale at between 25 pence and 33 pence a minute. Street argued, however, that it was no longer possible to judge the value of a company on a per subscriber figure, claiming that since the industry has matured, there is less emphasis on buying companies simply to increase subscriber base, and instead value could only be determined in the light of the more long-term strategic advantages to be gained from an acquisition. Citing as an example a Leeds-based reseller called Cartel, which was recently acquired by Talkland to improve its distribution network in the North of England, Street reckoned the same type of acquisition will oc
cur on a European scale in the coming years, as the best-placed resellers look increasingly to the continent.
Groupe Speciale Mobile
And perhaps the most significant development that will affect the industry will be the forth-coming pan-European digital cellular system GSM – Groupe Speciale Mobile. Firms like Talkland, which has already established some presence in Scandinavia, which has the highest per capita penetration of mobile phones in Europe, believe they have a headstart in the supply of GSM products; while contending that whether GSM in itself will be enough to condense the industry to a half a dozen main players will depend on how expensive GSM equipment turns out to be, Street agreed that, for small companies, investment cost may prove too high to move into GSM by themselves, and that for large companies – such as Talkland, whose plans for a private share sale value it at UKP80m, or UKP800 per subscriber the proposition of a ready-made company with a distribution infrastructure already in place may well appear too attractive to reject. The full findings of the BIS Macintosh report are available from BIS in Luton as part of its Mobile Communications Europe information service, which covers all aspects of European mobile speech, data and value-added services, and costs UKP13,500 on a yearly subscription.
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