from virtual operations strategy to building infrastructure

8/10/2019 From Virtual Operations Strategy to Building Infrastructure

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From virtual operations strategy to building

infrastructure

The case of Tele2 in the competitive landscape of telecommunications

D oes Tele2s change in strategy from virtual operator to incumbent reflect a sign of the

times? As a company focused on being long on customers and short on

infrastructure, Tele2 seized the opportunity as an early-mover in the Mobile Virtual

Operator Network market at the end of the 1990s and has evolved into Europes leadingalternative telecoms operator. Since 2003, however, Tele2 has shown signs of building its

own infrastructure. This shift from virtual operations yield the best margins to owning your

own infrastructure yields the best margins, has caused unease among analysts and

shareholders.

Mobile Virtual Network Operators (MVNO)

There is no universally accepted definition of an MVNO. In practice, most MVNOs are

resellers of other operators services, providing only marketing, customer care and billing.

The crucial issue is that once a prospective MVNO moves beyond the reseller model it must

spend money on equipment installation, even though this appears to leave little latitude for

improving profitability.

MVNOs are firmly established in a number of European countries. It has been observed thatthe proliferation of MVNOs causes a sharp upturn in the rate of churn among operators and

downward press on prices.

Tele2

Tele2 takes its roots in Industriforvaltnings AB Kinnevik, which began investing in the

telecommunications industry in the late 1970s.

At the end of the 1990s, in the fixed wired market including the internet, the brand name

Tele2 was used in Sweden, Norway, Denmark, Germany, Switzerland and The Netherlands.

Tele2 employed itself to build a strategic model that would prove profitable in overseas

markets without the necessity to build infrastructure. In Denmark, for instance, it consistently

marketed itself as the cost leader with an always cheaper concept based around anorganization with only 120 employees and volume discounts. By being an early mover and

concentrating upon value for money, Tele2 was able to establish itself as a major force in the

market.

Tele2s evolution

Tele2 announced in 2000 that it would be setting up a wireless MVNO in Denmark, applied

for 3G license in Sweden and received regulatory approval to buy the second-largest mobile

network operator in Latvia, Baltkom GSM.

DOI 10.1108/02580540710832924 VOL. 23 NO. 11 2007, pp. 23-25, Q Emerald Group Publishing Limited, ISSN 0258-0543 jSTRATEGIC DIRECTION j PAGE 23


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Uncertain times

Despite its success stories, Tele2 had to discontinue operations in Finland, Estonia, Latvia

and Lithuania due to competition and regulations. In December, it sold it fixed-wire

operations in the UK and Ireland to The Carphone Warehouse Group.

The acquisitions made in 2005 impacted negatively on the amount of borrowings and the

debt/equity ratio. The equity market was in two minds as to whether the company was going

forwards or backwards.

At the end of June 2006, Tele2s results made for grim reading. Net profit was down 57 per

cent from the previous year, due to marketing costs to win new customers for the mobile

telephony and internet businesses. However, in August, Tele2 signed a joint venture dealwith QSC to build a broadband network in Germany, trading as Plusnet, holding 32.5 per

cent of the stakes. Mobile users in Russia had risen from two million to four and a half million.

In spite of all that, the share price fell by 4.6 per cent, close to the 2002 low point.

As an MVNO well established in Europe, Tele2 will not be dislodged. The company means to

continue rationalizing its portfolio in line with its somewhat changed objectives.

Comments

This is a review of Tele2 and the strategic role of virtual operations by Peter Curwen, Jason

Whalley. This case study describes the evolution of Tele2s management strategy as a Virtual

Mobile Network Operator in Europe since its birth in the late 1990s. It describes how Tele2s

operations have changed as the market environment has become increasingly competitive.This article will be of interest to all managers interested in management strategy and

telecommunications.

Keywords:

Competitive strategy,

Management strategy,

Mobile communicationsystems,

Virtual organizations

Reference

Curwen, P. and Whalley, J. (2007), Tele2 and the strategic role of virtual operations, info, Vol. 9 No. 4,

pp. 55-69, ISSN 1463-6697.

It is worthy of note that Tele2s 2,172 employees at the end of2001 each generated five times as much revenue as thoseemployed by Telia and that the 55 per cent margin earned onmobile operations in Sweden was the highest in the world.

VOL. 23 NO. 11 2007 jSTRATEGIC DIRECTIONj PAGE 25

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