One to Watch

Deutsche Telekom aims to use recently acquired One 2 One as a launchpad for its global branding plans. The largely German government-owned company may not have the right connections to fulfill its ambitions, but One 2 One stands to gain from i

One 2 One, the UK’s smallest mobile phone operator, has become a pawn in Deutsche Telekom’s plan to create a pan-European, and then a global, publicly listed mobile communications brand.

With the &£8.4bn acquisition of One 2 One under its belt, Deutsche is running headlong into competition with the most acquisitive telecoms companies in the world – Vodafone AirTouch, BT and AT&T. Deutsche plans to consolidate and float its home-grown mobile and Inter net companies (T-Mobil and T-Online) and

One 2 One to form the basis of a pan-Euro pean mobile brand. However, the One 2 One brand, management and strategy are likely to change.

SG Securities analyst James McCafferty says: “One 2 One will be swallowed unless Deutsche chooses to use the name across Europe. It is more credible than T-Mobil, but I can see the company completely rebranding its whole service in six to nine months’ time.”

According to One 2 One, Deutsche will create an umbrella brand to cover both European mobile brands. A One 2 One spokeswoman says: “Deutsche has suggested that this would be the best way to maximise the value of the brands, and protect them in their own markets.”

The spokeswoman also says that Deutsche will float its mobile and Internet businesses, including One 2 One, under the umbrella brand. “This would ensure the value of the mobile businesses was recognised and not hidden among Deutsche’s other telecoms businesses,” she explains.

A flotation would fund further investment in Europe and potentially the US.

Last week One 2 One soldiered on with the brand repositioning it had been planning for a year.

It launched a &£30m pre-Christmas advertising campaign, ditching the well-known ad line “I’d most like to have a one to one with” in favour of a new slogan: “Welcome to your world”, which shifts the emphasis from branding to services.

It also announced the creation of a new business unit to be headed by David Henson, former marketing manager of telecom services provider Dolphin Telecommunications, and a mobile multimedia unit under director of business strategy Craif Tillotson.

The business unit aims to boost the number of One 2 One corporate users, who account for just 350,000 of its 2.7 million customers, in comparison with the 40 per cent of T-Mobil’s 7.5 million customers.

When Deutsche bought One 2 One from Cable & Wireless and Media One in August it gained a crucial foothold in the fast growing UK mobile industry. The number of mobile users is predicted to grow from 29 per cent to 40 per cent of the population by March 2000.

The deal is expected to receive approval from the European Commission by the end of the month.

Deutsche, the third largest carrier in the world behind Nippon Telegraph and AT&T, was privatised in 1996, but remains 64 per cent-owned by the German government.

Hoare Govett analyst James Downie believes Deutsche will change its name in three years: “As a former government monopoly it is not well-liked, but over the past few months it has tried to create a young, fun image through pre-pay mobile phones.”

Deutsche also has minority stakes in mobile operators across Hungary, Poland, the Czech Republic, Russia, Austria and the Ukraine which have over 4.2 million customers. It also has interests in Indonesia, The Philippines and Malaysia.

In addition, the company’s T-Mobil brand is expanding rapidly. Its main brand T-D1 has 7.4 million customers, 2 million acquired since the beginning of this year. Its pre-pay service Xtra has 900,000 customers, and it has launched a children’s mobile product called Yo Yo.

Its new sister started life in London in 1993 as Mercury One 2 One. It was the UK’s first digital mobile phone network. It dropped the Mercury name and began Bartle Bogle Hegarty’s “I’d most like to have a one to one with” ads in 1996. A year later it launched the industry’s first pre-pay mobile phone service, Up 2 You.

The BBH ads gained brand awareness but failed to highlight the services behind the brand, which as a result has languished at the bottom of the subscriber leagues.

Deutsche will link the T-Mobil and One 2 One networks to boost both their roaming capabilities (the ability to use mobile phones in different countries). But linking these networks will give other technological and marketing benefits. One 2 One, for example, will be able to learn from T-Mobil’s business customer marketing and T-Mobil is keen to mine One 2 One’s pre-pay product knowledge.

But will Deutsche’s pooling of resources give it the presence to go up against the big players in the mobile communications market?

One 2 One has 16 per cent of the UK market with 2.6 million customers, 400,000 of which were acquired in the second quarter of this year. However, Orange has 3.1 million customers, adding 800,000 of them in the first half of the year. Orange is valued at &£12bn, above One 2 One and BTCellnet, by the City which is impressed with its image, share performance and management.

BTCellnet has just over 5 million customers, 501,000 of them acquired between April and June, but the UK’s market leader is Vodafone AirTouch, the world’s biggest mobile phone operator. Vodafone’s &£38bn acquisition of AirTouch of the US this summer created a giant with 28 million customers and interests spanning 23 countries. In the UK it has 6.2 million customers, 2.5 million of them using its pre-pay services.

Vodafone AirTouch’s acquisition trail continues apace, with the &£607m purchase of telecom network CommNet Cellular in the US and &£51m acquisition of UniqueAir in the UK last week. It has interests in Australia and New Zealand, and is in talks to forge a &£60bn merger of its US mobile interests with Bell Atlantic of the US – a company Deutsche is also thought to have held talks with.

The company looks to be on the way to creating the world’s first global mobile brand. Vodafone director of corporate communications Mike Caldwell says: “We may examine whether co-branding is feasible.”

BT also has a string of partnerships around the globe, and the July 1998 &£7.5bn joint venture with US giant AT&T will be the linchpin of its global network. The two last week acquired a 30 per cent stake in Japan Telecom for &£1.2bn.

BTCellnet marketing director Kent Thexton says BT and AT&T are also gearing up for a global mobile network. “BT is building strong interactivity with AT&T through teams called mobility leaders’, bringing the global influence of our companies into play,” he says.

SG Securities analyst James McCafferty says: “If BT and AT&T pull together they will be a threat to Vodafone AirTouch. Deutsche, however, does not have enough global influence, it’s no match for Vodafone AirTouch.”

Deutsche recognises that it needs size. Company chairman Ron Sommer says: “Success in mobile phones is the key to our internationalisation and development strategy. Our future is not only in alliances but, even more importantly, in mergers and acquisitions.”

But alliances have proved a problem for Deutsche. Its bid for Telecom Italia failed earlier this year when Olivetti gained control of the operator. This move led to a legal rankle between Deutsche and France Telecom. The French operator said Deutsche’s bid violated existing stakes the two players have in international business telecoms provider Global One and Italian mobile operator Wind. The dispute has yet to be resolved, and until it is these deals appear shaky.

Deutsche’s strategy focuses on four areas – mobile, Internet, data and networks – its other interests will be hived off. Sommer has held talks this year with Rupert Murdoch about the sale of its German cable business.

The One 2 One acquisition is a small part of Deutsche’s interests in the UK. In 1998 it set up MetroHoldings with Energis and France Telecom to build telecoms networks for corporate businesses in UK cities. However, in buying One 2 One, Deutsche acquired a second brand. At the time of its sale, One 2 One was setting the seal on a 50:50 joint venture with Virgin.

Industry insiders believe Virgin Mobile, set for launch before Christmas, will be able to take advantage of Deutsche’s global plans and Deutsche, in turn, may leverage Virgin’s international brand awareness.

Virgin Mobile will piggy-back on the One 2 One network, buying bulk airtime from it and producing a Virgin-branded package from phones to bills. Virgin also intends to use existing data-transmission technology to provide online services linking Virgin Group’s music, airline and train services to its mobile phones.

“We will change how people think about mobiles,” says Virgin Mobile spokesman Steven Day. “Until now mobiles have been used for voice communications, but these new developments will make the mobile indispensable as a pocket diary.”

The five third-generation mobile phone licences to be auctioned by the Government next year will allow Internet, video and broadcast services to be accessed through mobile phones. But some operators, like Virgin, are introducing multimedia functions through existing technology.

“It is a misnomer that we have to wait for the third generation,” says BTCellnet’s Thexton. “We are launching Internet data services later this year which will have two advantages: it will have an ‘always-on’ capability (there is no off-line) and it will allow ISDN-type speeds in a mobile environment.”

One 2 One will become an Internet service provider (ISP) within a few months and has spent &£45m investing in the appropriate technology. The company says its new mobile multimedia unit will develop its services over the next six to 12 months.

Set against a background of a rapidly developing market and technology, the City believes Deutsche does not have enough international alliances to challenge the dominance of Vodafone AirTouch, but in Europe its connections will benefit One 2 One. The minnow of the UK mobile phone market has been swallowed whole by Deutsche and it seems likely it will be regurgitated in a different form.

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