New York Times April 8, 2003
Player in Cellular Phone Market in Europe Predicts Consolidation
By ERIC SYLVERS
ILAN, April 3 — In his four years as head of Italy's largest mobile telephone company, Telecom Italia Mobile, Marco De Benedetti has had to keep a close eye on Europe's cellphone market — so close that 14-hour workdays are the norm.
During much of his tenure as chief executive at the company, which has more domestic clients than any other European cellphone concern, the industry has had little in the way of mergers and acquisitions. Now, he says, that is set to change.
"Consolidation is inevitable," Mr. De Benedetti, 40, said in an interview at the Milan offices of Telecom Italia Mobile, part of Telecom Italia Group. "Most European countries can support only three mobile phone companies. The first two can make a lot of money splitting an 80 percent market share, and if there's one operator left, he can make a decent living. But if you have a situation, like in Germany, where there are three companies fighting for the last 20 percent, nobody is going to make it."
Four of Europe's five biggest mobile phone markets have more than three operators, and some have as many as six.
Mr. De Benedetti, who also spent 10 years at Olivetti, which used to own Italy's No. 2 mobile phone company, opened this round of consolidation late last year when Telecom Italia Mobile bought Blu, Italy's smallest cellphone operator. He said that even though Telecom Italia Mobile is almost debt-free, he does not plan to play a further role in any consolidation.
The company, which has 25 million clients in Italy and 46 percent of the market, has actually been shrinking its European presence. Over the last two years it has sold stakes in mobile phone companies in Spain, France and Austria after failing to take control of them.
Mr. De Benedetti sees Germany as the most likely terrain for the consolidation to begin. The country's two biggest cellphone companies, T-Mobile and Vodafone, together have a market share of 80 percent, while E-Plus and O2 split the rest. Add to that Mobilecom, which bought a new license, and Group 3G, which stopped building its network.
By Mr. De Benedetti's reasoning, Austria, Denmark, Finland and the Netherlands could also be ripe for consolidation. While Britain is something of an exception because it has four companies with a market share of about 25 percent each, a new company is set to enter the field in the coming months.
Blu and other late entries faced the same problem: the few clients they managed to sign up tended to be small spenders and people who already had cellphones. Number "portability" — which allows people to change service providers while keeping the same number — was introduced last year in Italy, and though it was hailed as an equalizer for new entrants, it has had little effect.
In addition, most newcomers took on debt to buy permits to use the Universal Mobile Telecommunications System. Companies have said they cannot afford to be without this new technology, which allows quicker Internet access as well as the transmission of music, video and photos.
But with clients slow to arrive, that debt is taking its toll. The companies found themselves billions of euros in debt with few or no clients, and that billions more euros were necessary to complete the networks. The late rollout of the networks, which have come into limited use this year, compounded the debt problems.
While there has been euphoria about the telecommunications system, it has nearly led to a crack in the European banking system, with many financial institutions overexposed to mobile phone company debt. Many executives still talk endlessly about the telecommunications system and the changes it will bring, but Mr. De Benedetti is loath to speak about this or any other technology and prefers to discuss the services he says will keep Telecom Italia Mobile successful.
Mr. De Benedetti, who was educated at the Wharton School, sounds what might be words of forewarning for both himself and his rivals: "We must not confuse what you can do with what customers will do. I can have you watch a movie on your cellphone, but are you going to do it? Of course not. At most you are going to watch one minute of video on your phone."
With almost all potential clients already signed up — Italy's 57 million inhabitants, for example, have 53 million cellphone contracts — it will be through new services that industry rivals will battle it out for supremacy, Mr. De Benedetti said.
Companies are already sprinting to be first to introduce services like photo messaging. Telecom Italia Mobile beat the pack in allowing clients to attach photos to their text messages, a service that provided an unexpected boon for the company and its rivals, which followed soon after with the same service.
Despite the early success of photo messaging, Mr. De Benedetti is cautious: "We aren't going to see the emergence of a killer application. Instead, there will be a behavioral change in which people will slowly begin to use their cellular phones for things that used to be the domain of other electronic devices."
He gives the example of traffic reports broadcast on the radio. Telecom Italia Mobile offers that service with the added advantage that it can be personalized for reports and maps only on areas of the city that interest the client.
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