Dutch mobile price war could follow licence sale

THE NETHERLANDS could be heading for a mobile phone price war similar to the one that has ravaged industry profits in France, with an auction of wireless licences next month likely to ramp up competition to market leader KPN and its rivals.

The Dutch government has set aside spectrum for new entrants at the October 31st auction in a bid to boost choice and lower prices in a country with 19.6 million mobile phone subscriptions – more than one for every head of population.

The arrival of one or more new players is likely to force incumbents KPN, Vodafone and Deutsche Telekom to cut tariffs in what is one of Europe’s most lucrative mobile phone markets.

The experience of the French industry does not bode well. There, cut-price newcomer Iliad grabbed 5.4 per cent market share in just six months, launching a price war that has severely hit profits at established firms France Telecom, Vivendi’s SFR and Bouygues Telecom.

“Iliad in France has redefined what is possible when you launch in a mature market,” said Will Draper, an analyst at Espirito Santo investment bank. “It almost won’t matter whether the new entrant is successful or not – the key thing is that it will create a domino effect, forcing KPN to cut its mobile pricing severely.”

Analysts predict mobile profit margins in France will decline from a mid-30s percentage to the mid-20s in the coming years as incumbents battle to compete with Iliad, whose Free Mobile service offers lower prices for more generous allotments of texts, calls and mobile internet.

Potential bidders for the new Dutch licences are familiar faces in the country: cable companies UPC (owned by Liberty Global) and Ziggo, and virtual mobile operator Tele2. None have detailed their plans due to auction rules that forbid bidders from speaking, but analysts expect there to be at least one new entrant.

Two unidentified firms indicated they would bid on the two blocks of 800 megahertz spectrum reserved for new operators, the government agency running the auction said. ING analyst Jeffrey Vonk predicted UPC and Ziggo could team up on a joint bid, but doubted Tele2 would jump in given its recent strategic announcements. – (Reuters)