Discount Operators Dominate in Denmark
By Eric Lin, Thu Aug 19 23:45:00 GMT 2004

Denmark is proving to be a test case for network evolution as discount operators force the large carriers to innovate (or buy).

In most European countries pre-paid customers comprise a majority of subscribers on each network. While pre-paid makes up the majority of users, they do not account for the majority of revenue, however that does not mean networks can afford to lose these customers. Operators still need as many subscribers as they can fit on their networks to pay for the infrastructure, even if that income is not a guaranteed amount. However traditional operators large and small are losing subscribers as well as revenue to relatively new discount operators.

About 44% of new mobile customers in Denmark have signed up with discount operators since the second half of 2000. Discount operators offer pre-paid services including voice, SMS and even packet data for lower prices than traditional networks' pre-pay plans. They own their own networks, but keep prices low by forcing customers to manage their accounts via a website. These low prices are stealing customers away from the large networks, as well as forcing them to lower prices in order to compete.

Strand Consult first saw these new discount operators as a threat to smaller operators, suggesting that they follow the trend and become discount operators themselves. Now Strand Consult has released another report of the effect that discount operators are having on dominant players. TDC, Denmark's largest carrier, has lost 20% of their pre-paid customers and almost 50% of their pre-paid revenue to discount operators in the past year. Although this loss seems severe, TDC has made a wise move and purchased discount operator Telmore, which it owned a 20% stake in, early this year. Sonofon, another large carrier in Denmark followed suit and bought CBB Mobil, Denmark's other discount operator the following month.

Denmark's two dominant carriers now have split personalities - one brand strong in post-paid service (although it has pre-pay customers) and another brand that dominates in pre-pay. It would make sense for both TDC and Sonofon to eventually move all pre-pay customers to the discount brands. Consolidating the number of pre-paid brands could reduce the ferocity of competition. Moving all pre-paid customers to a discount brand would also allow the operators to use their original brand as a service oriented flagship, where post paid customers and corporate accounts get better service and more options. This is similar to the organizational structure of Nextel and Boost. Although the circumstances are different (Boost has fewer subscribers than its parent and pre-paid prices have not dropped in the US like they have in Europe), the resulting corporate structures will most likely look the same in any market with a healthy mix of pre- and post- paid subscribers.