Friday, July 04, 2014

DT's Niek Jan van Damme misleads over wholesale

Niek Jan van Damme, MD of Telekom Deutschland, gave his view on networks after the EC approved the E-Plus/O2 merger.

Van Damme applauds the merger, as part of ongoing consolidation, but has two objections. One is that E-Plus/O2 controls a disproportionate amount of spectrum. The other is that the new company agreed to giving access to wholesale customers at friendlier rates & conditions.

Van Damme's latter argument doesn't seem to make sense:
- Why would retail customers be better for network expansion than wholesale customers?
- Why did E-Plus/O2 agree to this?

Wholesale carries virtually no S&M costs and therefore produces much higher gross margins. Partner marketing (at the wholesale customers) extends the S&M budget of the extended group. As a result, penetration & take-up of new services potentially grow higher/quicker.

In fact, focus on wholesale-only may even yield more cash than focusing on expensive retail services. Who knows. In any case, Telefónica Deutschland appears to have much more faith in wholesale than Telekom Deutschland.

Van Damme's quote even appears to be quite misleading:
`Another problem is that these regulations give an unequivocal advantage to providers who don’t have their own network infrastructure – and that sends the wrong signal entirely. The focus of the competition authorities should not be on strengthening providers without their own infrastructure, but on promoting the network expansion. Our society is continually becoming more digitized and connected, and the necessary infrastructure to support this expansion needs to be built. Marketing existing network capacities will not be sufficient.´

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