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The strategic implications of

European Union expansion for
mobile telecommunications
companies

Strategic
implications of
EU expansion
497

Peter Curwen and Jason Whalley

Strathclyde Business School, Glasgow, UK
Abstract
Purpose The European Union (EU) has recently been significantly enlarged with the addition of
ten countries. This was expected to induce telecommunications operators in the original EU15 to
invest heavily in operators in the accession countries. This paper seeks to analyse the extent to which
this has occurred in practice.
Design/methodology/approach The pattern of licence ownership and subscriber numbers in the
EU25 is set out for 30 June 2004. The market position of eight operators likely to have played a role in
investing in accession countries is examined and the level of concentration in every market is
calculated. A number of case studies of operators are generated and an overall conclusion reached as to
whether accession has indeed evinced a strategic response, or is likely to do so during 2005.
Findings The results show that there has been no uniform response by operators in the EU15 to the
onset of accession, and rather less investment overall than had been anticipated. This is explained by a
variety of factors such as lack of investments providing majority control, financial constraints and the
desire to cluster investments.
Originality/value This paper provides a timely analysis, eight months on from accession, of how
it is likely to affect individual, important industrial sectors within the now EU25.
Keywords Mobile radio systems, European Union, Telecommunications, Licensing
Paper type Technical

Introduction
On 1 May 2004, the European Union (EU) witnessed its largest individual expansion
when ten countries joined. The accession of these ten countries Cyprus (South),
Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and
Slovenia has irrevocably changed the EU[1]. Prior to the discussions on accession,
there was a clear, albeit diminishing, divide between Eastern and Western Europe.
This was certainly the case where telecommunications was concerned, an industry
traditionally treated as a national champion and hence one where governments had
long been somewhat ambivalent about stake-building by foreigners. On the one hand,
they were less than keen on ceding control over the industry to foreigners, while on the
other their incumbent operators badly needed new investment which was not available
domestically. Those countries negotiating for accession were also well aware that they
would be bound by the rules of the EU, which would restrict their ability to keep out
foreign companies that originated elsewhere in the EU. Equally, companies that had
stayed out of Eastern Europe on principle would now see their way clear to cross into
post-accession member states.

European Business Review

Vol. 17 No. 6, 2005
pp. 497-517
q Emerald Group Publishing Limited
0955-534X
DOI 10.1108/09555340510630545

EBR
17,6

498

The purpose of this paper is to explore two particular issues in the context of the
mobile telecommunications market: firstly, whether as a consequence of EU expansion,
the accession countries either have been or can expect to be the recipients of inward
investment from those companies that had largely ignored them prior to 2004;
secondly, whether those companies already active in the accession countries prior to
accession would seek to reinforce their existing positions.
To this end, the paper is structured as follows. In the main section below, the
ownership of mobile communication licences across the enlarged EU will be described.
In addition, the geographical footprint of operators will be established, with a
distinction being made between those operators that have invested in the accession
countries and those that have not. In the second main section the focus shifts onto the
accession countries, with the analysis being driven by the issues outlined above.
Conclusions will be drawn in the final section.
Mobile communication licence ownership across the enlarged EU
At the heart of the analysis of the implications of EU expansion on the strategies of
mobile communications companies is Table I. This table depicts second generation
(2G) known in Europe as the Global System for Mobile (GSM) and third generation
(3G) known as the Universal Mobile Telecommunications System (UMTS) mobile
licence ownership across the 25 countries that are now member states of the EU. In
essence, 2G represents a digital technology whose main purpose is to carry voice
telephony while also accommodating low-speed data transfer as exemplified by the
short message service (SMS), while 3G is capable of much higher speeds of data
transfer suitable for large data files and still and video photography. UMTS requires
the licensing of new spectrum, but there is also an intermediate technology, known as
the General Packet Radio Service (GPRS), that can operate at higher speeds than GSM
while using the same spectrum and hence the same licence.
Table I builds on Whalley and Curwen (2003) in three ways. Firstly, the table
identifies when each mobile service was launched. Secondly, the table details the
number of subscribers that each operator had at the end of June 2004. Finally, the table
also identifies the fixed-wire incumbent operator for each country. Although the
database relates to 30 June 2004, the latest date for which the data can be consistently
compiled across the EU25, the discussion throughout the paper relates to the situation
as of end-January 2005. Significant events that occurred between June 2004 and
January 2005 are highlighted in the text.
Extending Whalley and Curwen (2003) is advantageous in several ways. By
detailing the number of subscribers that a company has in each country, the table
begins to differentiate between a simple presence in a country where the company is
not a significant player and a presence where the company is actually (one of) the
largest in the market in terms of the number of subscribers. By combining the service
launch date and the number of subscribers, the table also provides an impression as
how fast the market is growing and how successful the mobile operator has been in
gaining subscribers. Since the table identifies the fixed-wire incumbent for each
country as well as the mobile operators, it is also possible to investigate whether or not
the incumbent owns the largest mobile operator in each country. Such common
ownership is important, as it will contribute, to a greater or lesser extent, to the
competitiveness and openness of the mobile market.

Base
Mobistar
Proximus
CyTA
Scancom
Cesky Mobil
EuroTel Praha
T-Mobile
Orange
Sonofon
TDC
TeliaSonera
EMT
Radiolinja Eesti
Tele2
TeliaSonera
Radiolinja
Suomen 2G

Belgacom

CyTA

Cesky Telecom

Belgium

Cyprus (South)

Czech Republic

Greece

Germany

France

Finland

Estonia

Denmark

Orange
SFR
Bouygues Tel
E-Plus
mmO2
T-Mobile
Vodafone
CosmOTE

Deutsche Telekom

OTE

France Telecom

TeliaSonera

Eesti Telefon

TDC

Mobilkom
ONE
tele.ring
T-Mobile

Telekom Austria

Austria

GSM

Fixed wire

Country

04/98

07/92
07/92
05/96
05/94
10/98
07/92
06/92

06/99
0 8/96
01/94
04/95
10/03
03/00
07/96
09/96
03/98
03/92
03/92
01/98
01/95
01/95
09/96
06/92
12/91
01/00

12/93
10/98
05/00
10/96

4,074,000

20,400,000
14,397,000
6,905,000
8,700,000
6,320,000
27,060,000
25,474,000

1,224,000
2,663,000
4,203,000
602,000

1,678,000
4,285,000
4,075,000
605,000
1,212,000
2,390,000
556,000
531,000
177,000
418,000
2,268,000
1,334,000
690,000

3,153,000
1,507,000
773,000
2,045,000

Hi3G Denmark
Orange
TDC
Telia Denmark
Eesti Telecom
Radiolinja Eesti
Tele2
Finnet Group
Radiolinja
Tele2
TeliaSonera
Orange
SFR
Bouygues Tel
E-Plus
Group 3G
mmO2
T-Mobile
Vodafone
CosmOTE

Hutchison 3G
Mobilkom
ONE
tele.ring
T-Mobile
KPN Mobile 3G
Mobistar
Proximus
CyTA
Scancom
EuroTel Praha
T-Mobile

UMTSb

11/03
[10/01]
[10/01]
[10/01]
[07/03]
[07/03]
[08/03]
[03/99]
[03/99]
[03/99]
[03/99]
02/04
06/04
[09/02]
06/04
[07/00]
06/04
01/04
01/04
06/04

04/03
04/03
12/03
12/03
01/04
[02/01]
[02/01]
04/04
[12/03]
[12/03]
[12/01]
[12/01]

1,000
1,000
6,000
1,000
(continued)

1,000

2,000
1,000

30,000

1,000

38,000
34,000
8,000
1,000
5,000

Strategic
implications of
EU expansion
499

Table I.
European Union mobile
licence ownership,
30 June 2004a

Fixed wire

Matav

Eircom

Telecom Italia

Lattelekom

Lietuvos Telekomas

EPT

Maltacom

KPN Telecom

TPSA

Hungary

Ireland

Italy

Latvia

Lithuania

Luxembourg

Malta

Netherlands

Poland

Table I.

Country

Go Mobile
Vodafone
KPN
Orange
Telfort
T-Mobile
Vodafone
Centertel
Polkomtel

Baltkom
LMT
Bite
Omnitel
Tele2
EPT
Tango
12/00
04/97
07/94
01/99
11/98
02/99
09/95
03/98
10/96

03/97
01/95
08/95
03/95
12/99
07/93
05/98

130,000
162,000
5,406,000
1,544,000
1,850,000
2,224,000
3,452,000
6,215,000
5,950,000

755,000
575,000
739.000
1,139,000
746,000
352,000
201,000

KPN
Orange
Telfort
T-Mobile
Vodafone
Centertel
Polkomtel

EPT
LuXcom
Tango

[07/00]
[07/00]
[07/00]
[07/00]
01/04
[12/00]
[12/00]

06/03
[07/03]
10/03

10/03
[08/02]
[09/02]
03/03
[11/00]
05/04
01/04
[11/00]
[09/02]
[09/02]

01/04
[07/01]

500

H3G
mmO2
Vodafone
H3G
IPSE 2000
TIM
Vodafone
Wind
LMT
Tele2

TIM
Vodafone

547,000
2,218,000
3,081,000
2,588,000
3,608,000
1,510,000
221,000
1,394,000
1,881,000
26,016,000
19,686,000
10,504,000

Info-Quest
TIM
Vodafone
Pannon
T-Mobile
Vodafone
Meteor
mmO2
Vodafone
TIM
Vodafone
Wind

06/02
06/93
07/93
03/94
04/94
11/99
02/01
03/97
06/93
04/95
12/95
03/99

UMTSb

GSM

(continued)

1,000

1,000

4,000

2,000
5,000

1,200,000

2,000

1,000

EBR
17,6

Telekom Slovenije

Telefonica

TeliaSonera

Slovenia

Spain

Sweden

Spring Mobile
TeliaSonera
Tele2
Vodafone
mmO2
Orange
T-Mobile
Vodafone

06/02
11/92
01/92
09/92
07/94
04/94
09/93
12/91

4,138,000
3,420,000
1,479,000
13,525,000
13,747,000
14,899,000
14,227,000

Amena
Telefonica
Vodafone
Xfera
Hi3G
Tele2
TeliaSonera
Vodafone
mmO2
3 UK
Orange
T-Mobile
Vodafone

PTC
TMN
Vodafone
Optimus
EuroTel
Orange
Mobitel

7,300,000
4,727,000
3,320,000
1,960,000
1,740,000
2,208,000
1,384,000
363,000
33,000
8,686,000
18,640,000
9,956,000

PTC
TMN
Vodafone
Optimus
EuroTel
Orange
Mobitel
Si.mobil
Vega
Amena
Telefonica
Vodafone

09/96
10/92
10/92
09/98
02/97
01/97
06/96
03/99
12/01
01/99
07/95
10/95

UMTSb

GSM

[03/00]
02/04
01/04
[03/00]
04/03
06/04
03/04
01/04
[05/00]
03/03
[05/00]
[05/00]
05/04

[12/00]
04/04
01/04
06/04
[07/02]
[07/02]
12/03

5,000

738,000

70,000
1,000
5,000
3,000

2,000
3,000

2,000

1,000
2,000
1,000

Notes: The entries consist of name of operator, date when its service was first launched and the number of subscribers at the end of June 2004. In the
case of UMTS, entries in brackets denote the date the licence was issued if the network is not operational, where an operator provides both GSM (900 MHz
band) and PCNs (1,800 MHz band), the subscriber data are provided for both services together. Subscriber data often differ depending upon the source, but
such differences are rarely statistically significant in the context of EU countries. There is, however, some controversy over the counting of inactive
customers. For example, Vodafone and Orange in the UK delete customers who have been inactive (making, say, no outgoing calls and receiving fewer
than four incoming calls per month) for three months, whereas some operators only do so after a year of inactivity and some not at all; bThe term launch
in the context of UMTS can mean many things, but normally refers to the launch of a service for corporate customers via data cards inserted in laptops.
A consumer service via handsets usually follows months later. The subscriber numbers are unlikely to be entirely accurate.
Source: Details obtained from regulators web sites, company web sites and media and internet web sites

Slovenske Telekomunicacie

Slovakia

BT

Portugal Telecom

Portugal

UK

Fixed wire

Country

Strategic
implications of
EU expansion
501

Table I.

EBR
17,6

502

It is possible to make a series of preliminary observations about the mobile market of

the enlarged EU in general and the mobile markets of accession countries in particular
as of 31 January 2005. In the first place, 2G mobile communication licences had been
issued in all member states. Although 78 licences were operational at this point of time,
the number of licences operational in each member state varied between two and five.
Cyprus (South), Latvia, Luxembourg, Malta and Slovakia operated only two 2G
licences, while the Netherlands uniquely operated five. The most common number of
operational 2G licences was three since this applied in 13 member states.
In contrast, not all EU-member states had issued 3G licences. At the end of January
2005, 23 of the 25 EU-member states had issued 3G licences Lithuania and Malta
remained the only exceptions since Hungary had issued licences to Pannon, T-Mobile
and Vodafone in December 2004. More 3G licences than 2G licences had been put on
offer, but because not all of the 3G licences on offer had either been awarded or
retained, the number of operational 3G licences (including networks being rolled out)
was less than the number of operational 2G licences. There were, as noted, 78
operational 2G licences but of the 92 3G licences initially on offer only 82 had formally
been awarded and of these fewer than 78 were set to become operational[2]. This is
somewhat surprising as many governments had indicated their desire to use the 3G
licensing process as a way to increase the number of companies, and therefore, the
amount of competition, in the market. It is of interest to compare the names of the
holders of 3G licences with the 2G incumbents in Table I, and at first sight there may
appear to be a surprising number of new entrants, but the match is considerably closer
than it appears to be since many incumbents used other names than their own when
applying for 3G licences, often because they were part of a consortium. In practice, the
lists of 2G and 3G licensees are closely matched, and there is only one new entrant that
crops up at all regularly, namely Hutchison Whampoa trading as, for example, H3G.
Only a minority of member states witnessed the launch of 3G services prior to the
end of 2003. By that point only ten mobile operators among the 25 listed above had
begun to offer 3G services, although by the end of June 2004 the number of official
launches involved 32 operators in 14 member states, as shown in Table I. More than
half of the 3G subscribers on 30 June 2004 were to be found in Italy, with the UK
accounting for another 750,000. In both countries, the main operator concerned trades
under the same brand, namely 3, although ownership of the brand is not identical in
every country where it has launched. It is notable that 3, or perhaps more accurately
its main owner Hutchison Whampoa, accounted for six of the twelve launches during
2003, a phenomenon that was clearly related to its lack of 2G licences.
Secondly, it may be noted that across the enlarged EU, the incumbent fixed-wire
operator owns the largest mobile operator in 19 member states: Austria, Belgium,
Cyprus (South), Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece,
Hungary, Italy, Latvia, Luxembourg, Netherlands, Portugal, Slovenia, Spain and
Sweden. This observation can also be phrased more informatively in a slightly different
fashion; that is, in just two of the 15 old member states of the EU the incumbent
operator does not own the largest mobile operator. The exceptions are Ireland and the
UK. In the case of Ireland, Eircom, the incumbent fixed operator, divested its mobile
subsidiary, Eircell, in May 2001, and Vodafone subsequently acquired Eircell for e4.5
billion in December 2001. In the UK, BT also divested its mobile arm, mmO2. In
November 2001, BT spun-off mmO2 in order to ease the financial problems that it was

facing in the aftermath of acquiring 3G licences and buying out its partners in its British,
Irish, Dutch and German mobile businesses. Surprisingly, mmO2 is not the largest
mobile operator in the UK nor has it been for many years. This accolade has alternated
between Orange, a subsidiary of France Telecom, and Vodafone. As of June 2004, all four
GSM network operators had at least 13.5 million subscribers and, as Table I shows, no
other member state has anything like such equality between its operators.
This leaves four member states, all accession countries, where the incumbent fixed
operator does not own the largest mobile operator. In all of these Lithuania, Malta,
Poland and Slovakia the largest mobile operator is partially owned by foreign
investors. In Lithuania, the incumbent fixed operator does not own a stake in any
mobile operator, while in the case of the other three countries the incumbent owns a
stake in the second-largest mobile operator.
Related to the above is a third observation, namely, that those mobile operators with
multiple licences across the EU are usually the second- or third-largest operators in the
market. Through combining the subscriber information contained in Table I with
Whalley and Curwen (2003) which identified multiple licence ownership across Europe,
it is possible to determine the market position of operators in EU-member states as
shown in Table II. With two exceptions Tele2 (2003) and mmO2 each company
identified in the table is the largest operator in its home market. Tele2 is the
second-largest operator in Sweden after TeliaSonera while mmO2 is the smallest of the
four second-generation network operators in the UK.
If we focus on those mobile operators that are the largest operators in a foreign
country, then a common trait is that those markets where they are the largest are
comparatively small. For example, TeliaSonera is the largest mobile operator in the
three Baltic States but these are among the smallest of all the EU markets. Orange (in
Slovakia) and Vodafone are also the largest operators in relatively small markets.
Vodafone (along with TDC (2004)) until March has a (minority) stake in the largest
operator in the modestly sized Belgian market and a fully owned operation in Ireland
and Malta. Deutsche Telekom is the largest mobile operator in Hungary and Poland,
but whereas the Hungarian market is relatively modest in size with 7.7 million
subscribers, the Polish market, with more than 19.5 million subscribers, is the
sixth-largest in the EU. In this respect, therefore, Deutsche Telekom is unique among
the mobile operators identified in Table II.
Fourthly, drawing on the subscriber information contained in Table I, it is possible
to calculate the percentage of the mobile market controlled by the largest (two) mobile
operator(s) as of 30 June 2004. As we can observe from Table III, it is normally the case
that the largest mobile operator controls at least 40 per cent of the market. Often, the
percentage controlled by the largest operator is far greater. For example, in Spain,
Telefonica accounted for 50 per cent of all mobile subscribers. However, in four
countries Greece, The Netherlands, Poland and the UK the largest mobile operator
controlled less than 40 per cent of all subscribers. In all cases bar the UK, the largest
mobile operator controlled at least 35 per cent of the market, but in the case of the UK
the market share of the largest operator was just 26.4 per cent.
If the calculation is extended to include the second-largest mobile operator in each
market, then in most member states the mobile market is, to all intents and purposes, a
duopoly. The two largest mobile operators normally control over 70 per cent of the
market between them, with the only exceptions being Austria, the Netherlands, Poland

Strategic
implications of
EU expansion
503

EBR
17,6

Operator
EU Country

504

Table II.
Market position by
number of subscribers,
30 June 2004

Austria
Belgium
Cyprus
Czech R
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Slovakia
Slovenia
Spain
Sweden
UK

Deutsche
Telekom
2

Orange mmO2 Telenora Tele2b

3
2

Telia
Sonera

TDC Vodafonec
3

1
*

3d

2
*

4d
1
1

1
1

2
2

*e

1
2
2
3
1
2

2
2
2
3
1
2

2
1

5
2
3
1

*
*
*

*
*

1
2
3
2
*

*e

2
1

2
3
2

Notes: *Indicates a presence other than as a licensed operator with its own network. aTelenor is the
largest mobile operator in its home market of Norway, a non-EU member; bAlso present through
MVNO arrangements in Austria, Denmark, Finland and The Netherlands and through holding a 3G
licence in Finland; cAlso present through a Network Partnership Agreement in Austria, Cyprus
(South), Denmark, Estonia, Finland, Lithuania, Luxembourg and Slovenia; dStake sold to TeliaSonera
in October 2004. The second GSM licence is to be returned in December 2005; ePresent via part
ownership of a 3G licence that has yet to be launched

and the UK. However, it could be argued from the data that the only true exceptions are
the Netherlands and the UK.
Where three or more mobile operators have been licensed, a considerable gap often
exists between the number of mobile subscribers controlled by the second-largest
operator and the number of subscribers controlled by the third-largest mobile operator.
In nine member states, the subscriber base of the third-largest mobile operator is
approximately half the size of the second-largest mobile operator. For example, in
Sweden, Vodafone has just 43 per cent of the number of subscribers that Tele2 does.
The other member states where the third-largest operator is approximately half the
size of the second-largest are Belgium, Denmark, Estonia, Finland, France, Hungary,
Italy and the Netherlands.
In addition to the aforementioned nine countries, it is possible to identify another
three member states where the third-largest mobile operator has considerably fewer

Country
Austria
Belgium
Cyprus (South)
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
The Netherlands
Poland
Portugal
Slovakia
Slovenia
Spain
Sweden
UK

Total number
of 2G mobile
subscribers (000s)

Market share of the largest

operator as percentage of
total 2G market

Market share of the largest

two operators as percentage
of total 2G market

7,478
8,090
602
10,038
4,763
1,126
4,292
42,205
67,554
10,549
7,706
3,497
56,206
1,330
2,624
553
292
14,485
19,465
10,007
3,948
1,780
37,282
9,037
56,398

42.2
52.0
100
42.7
50.2
47.2
52.8
48.3
40.1
38.6
46.8
53.8
46.3
56.8
43.4
63.7
55.5
37.3
37.5
47.2
55.9
77.8
50.0
45.8
26.4

69.5
84.9

83.3
75.6
84.3
83.9
83.2
77.8
73.8
80.4
93.7
81.3
100
71.8
100
100
61.2
69.4
80.4
100
98.1
76.7
83.6
51.6

than half of the subscriber base of the second-largest. In Germany, E-Plus has around
one-third of the subscribers of the second-largest operator, Vodafone. In Ireland and
Slovenia, the size difference is even larger; in Slovenia the third-largest mobile operator
has just 11 per cent of the subscribers of the second-largest, while in the case of Ireland
the figure is 16 per cent.
Mobile communication markets in accession countries
The first issue to address at this point is the extent to which mobile operators are
EU-centric in respect of their geographical footprints, distinguishing between
operators with a heavy presence in the former EU and those with a presence in the
accession countries.
Table IV is drawn up so as to include those operators with licences in at least two
accession countries. This is a modest enough total, but reflects the fact that only one
operator, Vodafone, is present in more than four of the ten. Even here, however, there is
a need to distinguish carefully between operators with licences and those companies
operating under other arrangements. For example, it is possible for an operator to act as
a mobile virtual network operator (MVNO) by leasing spare capacity on an
incumbents network. Technically, the definition of an MVNO requires an operator to
possess its own switches and sell under its own brand, although there are also less

Strategic
implications of
EU expansion
505

Table III.
Market concentration,
30 June 2004

EBR
17,6

506

Table IV.
Operators present in at
least two accession
countries at 30 June 2004

EU Country
Austria
Belgium
Cyprus
Czech R
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Slovakia
Slovenia
Spain
Sweden
UK
Total accession
Total

Vodafone

Orangee

Tele2

Y
Y
Ya

Y
Y

Ya
Ya
Ya
Y
Y
Y
Y
Y
Y

Yf

Yd
Y
Y

Ya
Ya
Y
Y
Y
Y
Ya
Y
Y
Y
7
22

Operator
TeliaSonera

Deutsche Telekomg

TDC

Y
Y
Y
Y
Yb,c

Y
Y

Yf
Y
Y
Y
Y

Y
2
10

Y
Y
Y

Y
Y
Y

Yd

Y
Y
Y

Y
Y

Yc
Y

3
9

3
9

Y
4
8

2
4

Notes: aVia Partner Agreement not involving direct investment; bNetwork in abeyance; c3G only;
d
Trading as a MVNO; eFrance Telecom has reclaimed virtually 100 per cent ownership of Orange and
hence no distinction is made concerning ultimate ownership; fOrange sold the licence in Denmark to
TeliaSonera in October 2004 and returned the 3G licence in Luxembourg to the regulator in December
2004; gThe stakes are mostly held via mobile subsidiary T-Mobile

rigorous ways to operate virtually including as an enhanced service provider or

simply as a reseller of another operators branded service. The primary advocate of the
MVNO approach is Tele2 although, as Table III shows, it prefers direct investment in
networks in accession countries while operating as a MVNO in more established
markets. For its part, Vodafone prefers to negotiate network partner agreements,
involving no direct stake, whereby the network in question is usually re-branded with
the original operators name hyphenated to that of Vodafone. By this means, Vodafone
enjoys brand recognition without needing to lay out huge sums of money, and is able to
introduce its Vodafone live! Portal with associated roaming benefits, while the network
owner enjoys improved subscriber numbers and reduced churn because the Vodafone
name is more attractive than its own. In practice, Vodafone owns stakes in only three
accession countries, so the operator with the greatest presence involving investment is
in fact Deutsche Telekom subsidiary T-Mobile.

This is unsurprising since the geographical position of Germany clearly lends itself to
investment in countries close to its borders, many of which are accession countries (with
possibly more to come). This is an important point because it is immediately noticeable
that three of the big five EU incumbent mobile operators, namely mmO2, Telecom Italia
Mobile (TIM) and Telefonica Moviles do not appear in Table IV. For the latter in
particular, this is ultimately a question of history, culture and language. As of 30 June
2004, Telefonica Moviles (and/or occasionally its parent) was operational in ten overseas
countries, of which nine were to be found in Latin America the only exception was
Morocco, Spains immediate southern neighbour. In other words, apart from some
toying with 3G licences that had resulted in nothing other than fairly substantial
write-offs, the company had no interest in the pre-accession EU, let alone the accession
countries. This strategy, it must be said, had served it well to that point and it has
continued to pursue it in more recent months by acquiring the Latin American holdings
of BellSouth. TIM, for its part, also had over five million proportionate subscribers[3] in
Latin America as of 30 June 2004, albeit in only three countries, the same number in
which it is operated elsewhere in the world. In practice, its presence in a single accession
country, the Czech Republic, merely represented a tiny stake in the operator controlled
by T-Mobile, and was (as it remains) the least significant of its six (now five) overseas
holdings. As for mmO2 (both before and after its divestment from what is now the BT
Group), it had spent a period of retrenchment involving the shedding of minority interests
such that it remained operational only in Germany, the Netherlands and the UK (plus the
Isle of Man). Even so, it has to be said that historically it was never really interested in the
accession countries, preferring to invest in South-East Asia and North America.
It is also be useful for the purposes of clarification to examine briefly the operations
of mobile companies in what used to be termed Eastern Europe since only some of its
constituent countries have become accession countries. At the time of accession, four
EU incumbents had a significant presence involving investment in Eastern Europe,
namely Telenor, OTE, T-Mobile and TeliaSonera. OTE, interestingly, currently has
stakes in Albania, Armenia, Bulgaria, Macedonia, Romania and Serbia, so it has not
profited, to put it mildly, from accession. TeliaSoneras accession stakes are in practice
entirely in the Baltic countries, so its stakes to the east, in Georgia, Kazakhstan,
Moldova and Russia have also all missed the accession boat, at least for now. For its
part, Telenor currently has 11 overseas interests but, interestingly, it is not focussed
upon the Nordic/Baltic area, being present only in Denmark and Norway, whereas it
has stakes in Albania, Montenegro, Russia and the Ukraine in respect of which is also
missed out on accession although it did achieve a single success story in Hungary.
T-Mobile accordingly stands out because it has stakes in four accession countries, of
which three (Czech Republic, Hungary and Poland) individually generated more than
two million proportionate subscribers as of 30 June 2004. In addition, it owns stakes in
Croatia, Macedonia and Russia, so of its total of 13 overseas holdings the majority
(Austria, Czech Republic, Hungary, the Netherlands, Poland, Slovakia and the UK) are
now EU-based as a result of accession even if the USA comfortably generates the
third-largest number of proportionate subscribers after Germany and the UK.
What the above suggests is that there is a useful distinction to be made between the
Baltic and Eastern European aspects of accession Cyprus (South) and Malta are of
little significance because of their size and lack of potential for the entry of new
operators. Taking the three Baltic accession countries as a whole, the six operators

Strategic
implications of
EU expansion
507

EBR
17,6

508

listed in Table IV generate nine entries although that is somewhat distorted by the
Vodafone Partnership Agreements. In contrast, the five broadly Eastern European
countries generate ten entries. This is not a significant difference, so it is worth asking
whether it results from the companies sampled. To answer this, we can return to the
data in Whalley and Curwen (2003) which encompass 13 major European operators,
and these reveal that increasing the sample size makes almost no difference when
compared to Table IV above. Of the ten accession countries, only two are affected at all
by the inclusion of the additional seven operators, namely Hungary where Telenor has
a substantial stake and the Czech Republic where TIM has a very small stake. It is also
possible to establish whether any significance can be attributed to the fact that two
Nordic countries Iceland and Norway are not members of the EU. In practice,
Iceland is not significant since the only EU operator there is Vodafone via a
Partnership Agreement, but in Norway we find (predictably) both Telenor and
TeliaSonera (trading as NetCom GSM) as incumbents with Tele2 as a MVNO (although
it has returned its 3G licence).
In summary, accordingly, the situation was as follows at the time of accession:
Vodafone had invested in accession countries in the former Eastern Europe (Group A)
but had also been keen to extend its footprint to the Baltic accession countries (Group
B) without investing heavily. T-Mobile had invested heavily in Group A but had
ignored Group B. Orange was modestly involved in Group B but had ignored Group
A. TDC was slightly interested in both, while both TeliaSonera and Tele2 were heavily
invested in Group B while remaining wholly disinterested in Group A. Curiously,
Telenor (not included in Table IV) was, as noted, the only Nordic operator acting in an
entirely non-Nordic manner where accession was concerned. From the above it can be
seen that there was no common view of how to take advantage of the opportunities that
accession would (supposedly) bring.
Expansion and consolidation
Given the differences in the countries in which the mobile operators identified in
Table IV had chosen to invest prior to accession, an inevitable question to ask is
whether the accession of new members states either has encouraged in the interim, or
can be expected to encourage, any changes in their strategic priorities.
If we begin with T-Mobile, then the strategic importance of the Eastern European
countries to the company is clear for all to see. Indeed, the CEO Kai-Uwe Ricke, basking
in predictions of massive cash inflows during 2004, stated in May 2004 that Taking
into account the EUs enlargement towards the east, we are placing a special focus on
this region. It is possible to calculate the importance of this region to T-Mobile as of 30
June 2004 when it had in total roughly 75.5 million proportionate subscribers. Of these,
27 million were in Germany and 46.2 million in total in the pre-accession EU. Accession
transferred a further 8.5 million to that total, yielding 54.7 million in total in the
post-accession EU. The rest were largely accounted for the USA (14.6 million) and
Russia (5.2 million) with Croatia and Macedonia adding 893,000 between them.
T-Mobile has a choice between moving into new countries and expanding into
existing ones. In both cases, much depends upon existing shareholders and their
willingness to sell. Faced with a cash offer above the market price many shareholders
might be expected to succumb, but Deutsche Telekoms own shareholders are unlikely
to sanction using up cash reserves to support a move into the likes of Moldova.

Moreover, T-Mobile was not willing to fight for the 2G licence issued in Bulgaria in
May 2004 the stake in BTC which came with the licence was won by a private equity
company in preference to Turk Telecom.
Hence, the probability is that T-Mobile will prefer to increase its existing stakes, as
listed in Table V. In some cases, the purchase of additional equity will consolidate its
existing control over the operator while in other cases the purchase could allow
T-Mobile to take control of the operator for the first time. T-Mobile was particularly
keen to acquire the 51 per cent of PTC it did not own in Poland, if only to keep one step
ahead of Vodafone in a country with a modest penetration ratio. It accordingly upped
its offer to e1.3 billion in June 2004, having had a slightly lower offer rejected in
September 2003, and the offer was accepted on 1 September and cleared by the
European Commission on 30 October. Furthermore, it was confirmed in September that
Slovenske Telekomunikacie was about to acquire the outstanding 49 per cent of
Eurotel Bratislava, thereby transferring effective control (via a 51 per cent stake) to
T-Mobile, but this has yet to obtain regulatory clearances. Thus, its existing stakes
provide T-Mobile with ample incentives and opportunities to continue its Eastern
European-focused investment strategy. However, one intriguing prospect lay in the
Czech Republic where, despite its majority stake in an incumbent, T-Mobile CZ,
T-Mobile was alleged to be interested in acquiring EuroTel Praha via a bid for parent
Cesky Telecom. Presumably, had it done so it would have been forced to dispose of its
existing network which is almost the same size, but this switch of operator would have
got around the problem of trying to obtain full ownership of T-Mobile CZ. In the event,
perhaps understandably, T-Mobile chose not to line up as a potential bidder for Cesky
Telecom at the end of January 2005. As a final point, the existing geographical bias can

Total
subscribers

Stake
per cent

Proportionate
subscribers

2,045,000
175,000
1,380,000
4,075,000
27,060,000
3,608,000
623,000
2,224,000
7,300,000
17,330,000
1,739,000
14,899,000

100
25.0a
51.0
56.0
100
59.5b
30.3c
100
49.0
25.1
25.6d
100

2,045,000
44,000
704,000
2,282,000
27,060,000
2,147,000
189,000
2,224,000
3,577,000
5,248,000
445,000
14,899,000

Country

Other main stakeholders

Austria
Bosnia
Croatia
Czech Rep.
Germany
Hungary
Macedonia
Netherlands
Poland
Russia
Slovakia
UK

Hrvatski Telekomunikacije
The state 49 per cent
Ceske Radiokom 39.2 per cent

Matav
Matav

Elektrim/Vivendi 51 per cente

Sistema 52 per cent
The state 49 per cent

Notes: aVia a 51 per cent stake in Hrvatski Telekomunicacije of Croatia which owns 49 per cent of
Eronet; bDeutsche Telekom holds its stake indirectly via Matav which wholly owns the licensee;
c
Deutsche Telekom holds its stake indirectly via Matav which owns 51 per cent of MakTel; dDeutsche
Telekom owned 51.2 per cent of Slovenske Telekomunikacie which owns 51 per cent of EuroTel
Bratislava. The rest, shared by Verizon Communications and AT&T Wireless, was provisionally sold
to ST in September 2004 but has yet to be cleared by the European Commission; eAcquired by
Deutsche Telekom on 30 October 2004

Strategic
implications of
EU expansion
509

Table V.
T-Mobile, 30 June 2004

EBR
17,6

510

be expected to continue when the location of the next wave of accession countries,
which will of necessity largely be located within a broadly defined Eastern Europe, is
taken into account.
Will any of the other mobile operators identified in Table IV follow T-Mobile and
respond to accession by increasing their geographical coverage? As shown in Table IV,
Vodafone is already present in all but three of the ten accession countries, so the scope
for it to invest in more of these markets is actually quite limited. Of the three markets
where Vodafone is not presently active, the most significant is the Czech Republic. Of
the three 2G operators in the Czech Republic, two Cesky Mobil and EuroTel Praha
are potential acquisitions. The third operator, T-Mobile CZ, is majority owned by
Deutsche Telekom, and thus unavailable. In principle, the 51 per cent stake in Cesky
Telecom, owner of EuroTel Praha, that is currently being sold by the Czech
government provides an inviting target. Vodafone has recently indicated that it is
willing, and has the financial resources, to acquire the entire company (the rest is
owned by financial institutions), and it does have prior experience of hiving off and
selling a fixed-wire network dating back to its takeover of Mannesmann.
Cesky mobile is wholly owned by Telesystem International Wireless, which may be
prepared to sell its stake if the price is sufficiently attractive. Having said this, it
remains to be seen whether Vodafones shareholders would be prepared to countenance
the comparatively expensive acquisition of the smallest of the Czech Republics three
2G operators. Assuming that Vodafone fails to acquire Cesky Telecom it faces
potential opposition from Belgacom, Orange, Swisscom, TDC and Telefonica and
given the below 20 per cent market share of Cesky Mobile, a more attractive course of
action could be to enter into a Network Partnership Agreement.
The other two markets, Latvia and Slovakia, are comparatively small. As a
consequence, it is more likely that Vodafone will enter these markets, if at all, through the
use of Network Partnership Agreements rather than equity investments. However, this
assumes that the existing 2G operators would enter into such an agreement. So far as
Latvia is concerned, this is highly unlikely given who owns the two existing operators
Baltkom is wholly owned by Tele2 while LMT is largely owned by the Latvian state
(39.7 per cent) and TeliaSonera (54.6 per cent). It is inconceivable that either Tele2 or
TeliaSonera would sign a Network Partnership Agreement with Vodafone as this would
expand the regional coverage of their main competitor in the Baltic States.
The situation in Slovakia is a little more complicated, not least because Vodafones
ability to enter this market is also dependent on the strategic priorities and intentions
of Orange. Orange has only a limited exposure to the mobile markets of the ten
accession countries, with a presence across the EU that is skewed in favour of Western
Europe. Table VI below illustrates the situation.
Orange has made two accession country mobile investments; in Poland, where it or
strictly its parent which once again is its undiluted owner is a majority shareholder in
PKT Centertel, and Slovakia where it owns 63.9 per cent of Orange Slovensko, the
largest operator. These two investments are, however, not particularly representative of
the overseas investments that Orange has made altogether Orange has over 20
subsidiaries dotted around the world, including a significant number in Africa. Their
relative status is made clearer when subscriber numbers are taken into account.
Together, Poland and Slovakia account for less than 15 per cent of the wider European
subscriber base of Orange, although Orange has also invested in Romania, a country

Total
subscribers

Stake
per cent

Proportionate
subscribers

1,507,000
2,663,000
605,000
20,400,000
343,000
1,544,000
6,215,000
1,960,000
3,957,000
2,208,000
1,116,000
13,747,000

17.5
50.8
100a
100
54.1
100
56.4b
20.2
67.8
63.9
100c
100

264,000
1,352,000
605,000
20,400,000
186,000
1,544,000
3,505,000
396,000
2,683,000
1,411,000
1,116,000
13,747,000

Country

Other main stakeholders

Austria
Belgium
Denmark
France
Moldova
Netherlands
Poland
Portugal
Romania
Slovakia
Switzerland
UK

E.ON 51 per cent

Moldavian Mobile 30 per cent

TPSA
Sonae.com 46.3 per cent
AIG consortium 20.7 per cent

Notes: aThe minority investors were bought out in April 2004. However, the entire company was sold
on to TeliaSonera in October; b34 per cent in PTK Centertel directly and the rest via a 33.9 per cent
stake in TPSA, owner of the other 66 per cent of Centertel. A further 10 per cent of TPSA was acquired
in October 2004; cOrange (Liechtenstein) is a wholly owned subsidiary of Orange Communications of
Switzerland

that hopes to be among the next wave of accession countries. In contrast, France and the
UK, which are the two largest mobile markets of Orange, account for nearly
three-quarters of its European subscriber base. In other words, if Orange were to sell its
stakes in Poland, Slovakia and Romania its subscriber base would not shrink by as
much as one might expect. However, given that Orange is committed to consolidation
based upon countries where it holds majority stakes and hence control, preferably in
conjunction with a top-two ranking, and that parent France Telecoms short-term need
for cash has abated somewhat in recent months, a wholesale withdrawal from the former
Eastern Europe no longer seems at all likely. Indeed, it is a potential bidder for the
majority stake in Cesky Telecom (and hence Eurotel Praha) currently on offer.
Nevertheless, it is of interest to ask who might buy these stakes if they did become
available.
Vodafone would potentially be interested in the 63.9 per cent of Orange Slovensko
owned by Orange, not least because this would complement its existing array of mobile
businesses and could possibly act, at a later date, as a springboard for a move into the
other Balkan states, but it is unlikely to happen. Not only are Vodafones shareholders
unlikely to be willing to support an acquisition that adds a comparatively small
number of subscribers in a market where growth expectations are limited, but also
there are attractive investments with more potential elsewhere. One such is Romania
where Vodafone is already a minority shareholder in Connex see Table VII and
whose population is four times that of Slovakia. The potential of the market may be
tempting for Vodafone, but even if co-owner Telesystem International Wireless is
willing to sell, it is going to demand a premium price. Outside of such an acquisition, or
that of Cesky Telecom, Vodafone is unlikely to expand into new markets other than
through Network Partnership Agreements.

Strategic
implications of
EU expansion
511

Table VI.
Orange, 30 June 2004

EBR
17,6

512

Table VII.
Vodafone, 30 June 2004

Total
subscribers

Stake
per cent

Proportionate
subscribers

551,000
4,203,000
14,397,000
25,474,000
3,081,000
1,510,000
1,881,000
21,430,000
162,000
3,452,000
5,950,000
3,320,000
4,090,000
9,956,000
1,479,000
3,898,000
14,227,000

99.7
25.0
43.9
100
99.4
87.9a
100
76.8
100
99.9
19.6
100
20.1
100
100
25.0
100

549,000
1,051,000
6,320,000
25,474,000
3,063,000
1,327,000
1,881,000
16,437,000
162,000
3,454,000
1,166,000
3,320,000
822,000
9,956,000
1,479,000
975,000
14,227,000

Country

Other main stakeholders

Albania
Belgium
France
Germany
Greece
Hungary
Ireland
Italy
Malta
Netherlands
Poland
Portugal
Romania
Spain
Sweden
Switzerland
UK

Belgacom 75 per cent

Vivendi Universal 55.8 per cent

Antenna Hungaria 12.1 per cent

Verizon Communications 23.2 per cent

TDC, KGHM, PKN all 19.6 per cent

TIW 79.0 per cent

Swisscom 75 per cent

Note: aRaised to 90 per cent in July 2004 and to 100 per cent in September 2004

What of the other companies identified in Table IV? For different reasons, neither TDC
nor TeliaSonera appear likely to expand their geographical footprint as a result of EU
expansion. TDC has only two remaining investments in accession countries, in Bite in
Lithuania and Polkomtel in Poland. During 2003, TDC sold its holdings in the Czech
Republic and the Ukraine, so it did not appear to see the former Eastern Europe as
other than providing opportunities for financial investments. For a period during 2004,
any additional investments by TDC in accession countries could be ruled out until the
uncertainty over its own future was resolved. In mid-2004, SBC Communications Inc.
sold 32.1 per cent of the 41.6 per cent of TDC that it owned[4], but to financial
institutions rather than to another operator. The rest is set to follow. Pending the
completion of this sale, TDC stated that it would not enter into any negotiations
regarding potential new board had been able to conduct a strategic review of the
company. Evidently, TDC is once again ready to embark upon foreign adventures
since it is a potential bidder for the stake in Cesky Telecom currently on offer. This
may appear to be a little odd given that TDC departed from the Czech Republic after a
series of (mis)adventures, some involving Cesky Telecom in 2002, but its interest may
merely reflect its history of involvement in the country and it is unlikely to have the
sort of fire-power available to the likes of Vodafone (Table VIII).
The two accession investments that TDC still retains could be sold to free resources
for use elsewhere although they do provide a significant proportion of its subscribers.
Interestingly, Vodafone is already associated with both of these companies since it has
a Network Partnership Agreement with Bite in Lithuania and is a fellow shareholder in
Polkomtel in Poland. Thus, one possible scenario would see TDC exit Lithuania and
Poland through the sale of its stakes in Bite and Polkomtel to Vodafone. However,
whether Vodafone would make such a purchase is dependent on its ability to convince

Total
subscribers

Stake
per cent

Proportionate
subscribers

1,507,000
2,390,000
739,000

15.0
100
100

226,000
2,390,000
739,000

4,090,000
1,323,000

19.6
100

822,000
1,323,000

Country

Other main stakeholders

Austria
Denmark
Lithuania

E.ON 50.1 per cent

Vodafone, KGHM 19.6 per cent

Poland
each
Switzerland

Note: aTDC sold its stakes in the Czech Republic and the Ukraine during 2003

its shareholders. The case for acquiring additional shares in Polkomtel is more
compelling than that for acquiring Bite, primarily because Poland is a much bigger
market with more growth potential than Lithuania, and whoever acquired Bite would
anyway be likely to want to continue its Network Partnership Agreement with
Vodafone. Nevertheless, the stakes of Vodafone and TDC added together would still
only amount to 39.2 per cent of Polkomtel, so Vodafone would presumably want to buy
out sufficient other stakeholders at the same time to ensure majority ownership. As
noted above, Deutsche Telekom, for one, expects Vodafone to strike in the reasonably
near future, and it has to be one of Vodafones likeliest next moves within the accession
countries.
With the exception of the three Baltic States, TeliaSonera has no other mobile
investments in accession countries and recently terminated its interest in bidding for
Cesky Telecom. This should not be taken as suggesting that TeliaSonera has only a
limited international presence outside of its two home markets Table IX clearly
demonstrates that this is not the case but rather that its mobile investments are in a
broad array of countries including some that may be among the next batch of accession
countries. Telia and Sonera, prior to their merger, did take advantage of the 3G
licensing process to enter Germany, Italy and Spain, three of the largest Western
European markets. However, there has been a period of post-merger repentance
involving the writing off of the investments in all three markets[5].
Interestingly TeliaSonera now describes itself as the Nordic and Baltic
telecommunications leader, but although this may simply be an appropriate
description of its market position in these two regions, it does also raise the possibility
that it will further reduce its international footprint. Without a local partner to offset
the risk inherent in investing in the next wave of accession countries, it is possible that
TeliaSonera will sell more of its overseas investments, leaving it predominantly as a
Nordic and Baltic operator. The April 2004 offer by TeliaSonera to take outright
control of Estonias Eesti Telekom, although unsuccessful, together with the purchase
of the outstanding 10 per cent of Lithuanias Omnitel in August 2004 and the recent
sales of stakes in Hong Kong and Namibia, reinforces the feeling that its strategic
priorities lie in the Baltic and Nordic states and not elsewhere. Nevertheless,
TeliaSonera will be debt-free by the end of 2004, and has a substantial war chest for
acquisitions, so a contraction of its international footprint is not a foregone conclusion.
Given its proximity to the Baltic states, it is not surprising, therefore, that in August

Strategic
implications of
EU expansion
513
Table VIII.
TDC, 30 June 2004a

EBR
17,6

514

Table IX.
TeliaSonera, 30 June 2004

Total
subscribers
556,000
531,000
2,268,000
360,000
1,353,000
575,000
1,139,000
211,000
1,239,000
9,108,000
3,420,000

Stake
per centa
100
49.0b
100
62.0
38.0
54.6c
90.0d
74.0
100
43.8e
100

Proportionate
subscribers
556,000
260,000
2,268,000
223,000
514,000
314,000
1,025,000
156,000
1,239,000
3,989,000
3,420,000

Countryf

Other main stakeholders

g

Denmark
Estonia
Finland
Georgia
Kazakhstan
Latvia
Lithuania
Moldova
Norway
Russia
Sweden

The state 27 per cent

Turkcell
Turkcell; Kazakhtelecom 49 per cent
The state 39.7 per cent

Turkcell

Telekominvest; LV Finance

Notes: aThe stakes in Georgia, Kazakhstan and Moldova are held via Fintur Holdings, held jointly by
TeliaSonera (58.55 per cent) and Turkcell (41.45 per cent). However, TeliaSonera claims the majority of
the subscribers; bTeliaSonera offered to buy the rest of the shares in April 2004; c49 per cent is held
directly and a further 11.4 per cent by Lattelekom, a fixed-wire operator that is 49 per cent owned by
TeliaSonera; dRaised to 100 per cent in August 2004; eAccording to TeliaSoneras web site but
elsewhere consistently stated to be 35.8 per cent; fIn Spain, TeliaSonera owns 34.2 per cent jointly with
ACS and 2.2 per cent independently in the as yet un-launched 3G operator Xfera. In Italy, it holds a 3G
licence but has written off its investment; gTeliaSonera also bought Orange Denmark in October 2004

2004 TeliaSonera announced that it would be a candidate when Poland offered its
fourth GSM licence.
It is worth noting that the Finnish government appears to have agreed to what in
effect constituted the takeover of Sonera by Telia on the understanding that
TeliaSonera would pursue a strategy of growth. Ultimately, because TeliaSonera
stated in June 2004 that its ambition is to take majority control of its foreign
investments, and given the size of the proportionate subscribers involved, its strategy
is dependent primarily upon its relationship with its main partners. For example, the
relationship between TeliaSonera and Turkcells largest shareholder, Cukurova, has at
times been fraught Cukurovas stake was confiscated by the government in 2003 as
collateral against debts and is being returned in stages commencing in July 2004 and
the situation in Russia is permanently unsettled. Such problems are usually addressed
either via a takeover or a withdrawal. It is significant that, in late June 2004, the
Finnish deputy CEO of TeliaSonera, with responsibility for pursuing the purchase of
majority stakes in Turkcell and Megafon, was dismissed by the Swedish CEO (George,
2004). At the very least, this indicates that TeliaSonera will not overpay to take
control, but to remain a permanent minority investor hardly seems an attractive
proposition as TeliaSonera has acknowledged.
The final company mentioned in Table IV with a presence in the accession countries
is Tele2. Although Tele2 operates in nine EU-member states, it has made just three
investments in the accession countries, namely Tele2 Eesti in Estonia, Tele2 Mobile in
Latvia and UAB Tele2 in Lithuania. In other words, Tele2 has invested in the Baltic
States that complement geographically its presence in the nearby Nordic States. A
second characteristic of Tele2s investment strategy is its tendency to use MVNO

arrangements to enter new markets. Of the nine mobile investments that Tele2 has
made in the EU, three are as a MVNO. Of the six networks licensed by Tele2, only one,
in Luxembourg, can be found outside of Sweden and the Baltic States. Thus, the
geographical preference in terms of ownership within the EU is marked as is the
preference for control only in Sweden, where it has an 87.3 per cent stake, does Tele2
not own the entire company.
There has also been a temporal element to Tele2s strategy. Since 2000, the
primary way through which Tele2 has entered new markets has been by setting up
as a MVNO. Of the six EU-member states that Tele2 has expanded into since 2000
only one, Luxembourg, has involved 2G network ownership, although its small size
meant that one of the main reasons for creating a MVNO cost was not an issue
here. It may also be noted that the licence acquired by Tele2 in Finland was for 3G
and it has yet to launch the network; the launch will necessitate the use of another
operators GSM network. Moreover, all of the mobile markets that Tele2 has entered
since 2000 as a MVNO are EU15 member states and not accession countries.
However, Tele2s strategy is more eclectic than it may appear to be on the basis of
the above since it has a GSM licence in Liechtenstein, has recently acquired a
regional GSM licence in Switzerland, has an ongoing operation in Russia and, in
January 2005, a Tele2-led consortium was awarded a joint GSM/3G licence in
Croatia. It is also allegedly interested in buying ONE in Austria from E.ON it
already operates there as a MVNO using the ONE network. It has to be said that
none of these operations appear to generate many controlled subscribers, although
the situation in Russia where Tele2 fails to identify separately its mobile
subscribers is unclear.
When the geographical focus of Tele2 and its use of MVNOs are combined, we can
conclude that while it may expand into new mobile markets in the future, these
markets are unlikely to be found among the accession countries. As a consequence,
Tele2 is unlikely to play anything other than a minor role in the mobile markets of
accession countries outside of the Baltic States.
Conclusions
The above discussion has focused on the ownership of mobile communication licences
in the enlarged EU. In the course of this a distinction has been made between the
original 15 member states and the ten accession countries that joined in May 2004. The
first conclusion that can be drawn is that the largest multiple owners of mobile
communication licences identified by Whalley and Curwen (2003) have with the
exception of Vodafone, only a limited presence in the mobile communication markets of
the ten accession countries. Both Tele2 and TeliaSonera have focused on the Baltic
States while Deutsche Telekom has concentrated its attention on those Eastern
European markets that either border, or are close to, its home market. This is not
particularly surprising since liberalisation offered so many opportunities to expand
into the other member states of the pre-accession EU, and the costs of licence
acquisition plus network roll-out were extremely burdensome. Hence, stake-building in
the Baltic region or elsewhere in the former Eastern Europe was as likely to be
influenced by political as much as economic considerations.
Once the date was pencilled in for accession there was the possibility of renewed
strategic interest in the accession markets, but it came at a bad time since most

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operators were struggling with the fall-out from the collapse that began in 2002. Few
accordingly had the wherewithal, let alone the will, to make expansionary moves. The
obvious candidate was Vodafone, given its resources and its strategy based upon its
international footprint, while an alternative contender such as Orange was forced to
retrench to the point that it became predominantly a Western European-focused mobile
operator with a presence in an increasingly scattered set of markets. While the need to
raise capital for its parent company has abated, Orange, like TeliaSonera, is no longer
interested in playing bit parts and wants either to be a serious player or to exit. Exit is
nevertheless easier said than done because of the shortage of buyers, and even the likes
of Vodafone would be hard pressed to pay the kind of premium that Orange (or other
potential sellers) would demand in the present investment climate. Insofar as
stake-building is concerned, it does appear to be far more likely that operators will seek
to consolidate their positions in existing markets through purchasing additional equity
in companies where they already own a stake, but since these are short in supply and
would unquestionably require a considerable control premium to be paid, we can
reasonably conclude that very few of the accession countries will witness ownership
changes over the course of the next year or two.
In this respect it is significant that, although Vodafone is present in seven accession
countries, it does not own a network in all seven markets. Indeed, Vodafone owns a
network in just two markets Malta and Poland and is present in the other five
through the use of Network Partnership agreements. Those markets where Vodafone
has used Network Partnership Agreements are characterised by their small size. When
this observation is combined with the propensity of Tele2 to use MVNO arrangements
to enter markets, a final conclusion is that multiple licence owners are using a wider
variety of entry modes than was previously the case. However, a final caveat is that
while Vodafone has opted to establish Network Partnership Agreements in preference
to the purchase of a network in small markets, Tele2 has made MVNO arrangements in
both small and large markets alike.

Notes
1. For a discussion of the challenges of EU enlargement see, for example, Cottrell (2003) and
Rachman (2001).
2. For example, one of the licences had been offered but later withdrawn for reasons of
non-payment of the licence fee in Slovakia; one licence had been revoked in Portugal and one
returned to the regulator in Germany due to failure to meet roll-out conditions; one licence
had successfully been sold on to another licensee in Austria, thereby reducing the number of
licensees; and one licence had to be returned in Denmark as a result of the purchase of one
licensee by another.
3. Total number of subscribers multiplied by ownership stake.
4. The remaining shares, approximately 8.4 per cent of the company, will be purchased by TDC
itself at a later date.
5. Sonera wrote down the value of its investments in Group 3G and Ipse 2000 to zero at a total
cost of SEK39.2 billion in the second quarter of 2002 (TeliaSonera, 2003, p. 53). This was
followed in December 2002 by a SEK660m write-down on the value of its stake in Xfera, its
Spanish 3G investment.

References
Cottrell, R. (2003), A survey of European enlargement. When east meets west, The Economist,
22 November.
George, N. (2004), Shadows over an unhappy Nordic marriage, available at: http://news.ft.com,
29 June.
Rachman, G. (2001), A survey of European enlargement. Europes magnetic attraction, The
Economist, 19 May.
TDC (2004), SBC intends to sell TDC shares, available at: http://tdc.com/about/press/releases
Tele2 (2003) Annual Report 2003, Tele2, Stockholm.
TeliaSonera (2003) Annual Report 2002, Teliasonera Stockholm.
Whalley, J. and Curwen, P. (2003), Licence acquisition strategy in the European mobile
communications industry, Info, Vol. 5 No. 6, pp. 45-57.
Further reading
Curwen, P. (2002), The Future of Mobile Communications: Awaiting the Third Generation,
Palgrave, Basingstoke.

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