Consolidating infrastructure contracts will bring major cash savings, and therefore seems sensible. More interesting, though, is the outsourcing deal: mmO2’s Dutch business will effectively become a virtual operator, with Ericsson managing its entire network. This could be a good model for other mid-to-small scale mobile operators to adopt.
mmO2 has signed new network infrastructure contracts, including an outsourcing deal with Ericsson.
European mobile operator mmO2, which was spun out of BT last year, has restructured its deals with network suppliers. The company will now deal exclusively with Nortel, Nokia and Ericsson, spending a total of E2.2 billion under the new contracts.
mmO2 will buy its pan-European GPRS network from Nortel, and will buy any new GSM infrastructure from Nokia. Ericsson will provide 3G infrastructure in the Netherlands, and will also take over management of the entire Dutch network. In Germany, the UK and Ireland, the 3G contract will be split between Nortel and Nokia.
Previously, mmO2’s infrastructure deals were split by country, so changing suppliers will save the company in the region of E600 million over five years. Infrastructure savings are a key driver behind mobile industry consolidation – especially since operators remain cash-strapped. Multinational mobile operators such as mmO2 – and even more so, Vodafone or T-Mobile, can negotiate strong savings.
More unusual however, is the outsourcing deal. From July 2002, although mmO2 will continue to own the network, Ericsson will manage it. It will arrange day-to-day operations, planning, design and implementation, allowing mmO2 to focus on customer service and billing.
While other companies have outsourced their networks, this is one of the largest such deals ever. Despite asset ownership on the balance sheet, mmO2’s Dutch operation will now effectively be a mobile virtual network operator. The importance of this channel is highlighted by BT’s recent decision to re-enter the mobile market as an MVNO.
Global giants such as Vodafone and NTT DoCoMo have as much expertise in building mobile networks as anyone in the industry. However, the same is not true for mid- and small-tier players. Some of the other such operators might also do well to follow mmO2’s lead, focusing on building a strong brand and compelling services, and allowing their suppliers to deal with the technology – although negotiating buy-back contracts concerning previous infrastructure investment could be a problem.
Related research: Datamonitor, 2002: 2.5G critique