Denmark, it is commonly accepted, isn't cheap. That is, unless
you happen to be a customer of one of its mobile operators.
The country is the most expensive place in the world to buy
Apple Inc.'s (AAPL) iPad2, yet has the lowest prices for mobile
voice and text services among member countries of the Organization
for Economic Cooperation and Development.
And that isn't sustainable, according to Anders Jensen, the
newly appointed head of the consumer division at TDC AS (TDC.KO),
Denmark's largest mobile operator by subscribers and revenue, not
least because customer satisfaction is also at rock bottom.
As a result, TDC aims to refocus on keeping its existing
customers happy, at the same time taking some of the heat out of
the intensely competitive Danish telecoms market that has seen a
proliferation of low-cost brands in recent years.
"Telecommunications in Denmark is characterized by the approach
Danes have to the retail business in general. Danes are famously
known for their tendency to search for discounts and hunt for the
best possible deal," Jensen said in recent interview with Dow Jones
Newswires.
The spiral of low-price competition in the Danish telecom market
started some 10 years ago, when the traditional operators were
challenged by low-price carrier Telmore. The success of Telmore,
which TDC bought in 2003, inspired other entrepreneurs and spurred
the rapid growth of other discount brands, many of which have since
been acquired by the larger operators.
"Discount brands have become a way to run telecommunications
business in Denmark. All the four large operators--TDC,
Teliasonera, 3 and Telenor--have established or acquired discount
brands which they work with in parallel with their core
operations," said Jensen, who recently joined TDC from Norwegian
operator Telenor ASA (TEL.OS), where he headed its Hungarian
operation.
The most recent example was TDC's acquisition of Onfone, which
had previously taken some 20,000 customers a month from the
traditional operators before TDC last month paid 300 million Danish
kronor ($57 million) to acquire it. But now TDC, which is the only
company to have managed to keep up a good level profitability in
the difficult Danish market, aims to put an end to what Jensen
describes as an "unhealthy market environment."
Last year TDC, which has most of its operations in Denmark,
posted an operating margin on earnings before interest, taxes,
depreciation and amortization of 41%. TeliaSonera's Danish
operating margin was 19% in 2010 and Telenor's was 24%.
According to a report entitled 'OECD Telecoms Price Benchmarking
Baskets,' published in February last year, Danish mobile customers
pay nearly half as much for mobile telephone services compared with
those in Switzerland, who spend the most in the OECD.
Danes are also much more likely to switch mobile operators. A
recent study from the Danish Competition and Consumer Authority,
published this month, showed that more than a third of Danish
consumers switched their mobile operator last year compared with
slightly over 10% of consumers in nine other European
countries.
"I would say that the marketplace in Denmark has become
overheated and over-populated," he said. "There is nothing wrong
with working with multiple brands, if one can do this in a
cost-efficient way. But in the past few years the many discount
brands on the market have been making market investments in the
same size as those of traditional operators, and that isn't
healthy."
Jensen said Danish telecom operators have become too focused on
attracting new customers, with the result that they have neglected
existing ones and caused deep dissatisfaction with the
industry.
"For customers, the fact that prices have been pushed down is of
course positive. But paradoxically, consumers in Denmark aren't
satisfied with the telecommunications industry. Our industry is
ranked bottom among Danish consumers, in terms of perceived
trustworthiness."
The market has "come to a point where the noise has become more
irritating than positive, despite the low prices," Jensen said, and
as market leader TDC needs to take the lead in regaining customers'
trust.
Following the acquisition of Onefone, TDC now offers mobile
services through three low-cost brands in addition to its premium
TDC brand. While Jensen said that brand portfolio is right for now,
"in a couple of years' time, provided we manage to set a new
direction on the market, I'm not sure there will be the same need
for as many brands as we have today, both for us and for the
broader Danish telecom industry."
Jensen said a new direction for the market would require the
company to rethink its investment allocation to account for the
need to reward its loyal customers.
"I wouldn't say that we need to increase our total investments
to carry through these changes, but if you change the focal point
from attracting new customers to increasing the focus on the
existing customer stock, that implies that there has to be a
redistribution of investments," he said.
TDC increased its total marketing spend last year, according to
its annual report, but didn't detail what that spend was.
Jensen said TDC's competitors in Denmark share the same concerns
about the market as he has.
Last week, two of TDC's main competitors, Sweden's TeliaSonera
AB (TLSN.SK) and Telenor, said they had signed a network-sharing
agreement in the country. TeliaSonera said at its capital markets
day last week that it isn't happy with its market position in
Denmark and needs scale in its network to ensure that it is
profitable to do business there in the long term.
"Of course, we are not discussing this with our competitors, but
I definitely think there is a common interest among the operators
on the Danish market to create a more sound market place, which
ensures the possibility to earn enough income to make necessary
market investments," Jensen said.
-By Sven Grundberg, Dow Jones Newswires; +46-8-5451-3098;
sven.grundberg@dowjones.com
