Scarlet Telecom is looking to grow its business in the Netherlands. After the takeover by Belgacom it was quiet around the Dutch branch, but there will soon be a new advertising campaign. This is good news for the Dutch telecoms market. Tele2 has already complained about limited competition in the mobile market and the broadband market churn is notoriously low.
Scarlet still has a few important choices to make. With its still standing ambition to be the 'leading' (not necessarily ‘largest’) alternative provider in the Netherlands, the company has several options. Everything depends on Belgacom’s willingness to invest in Scarlet Netherlands. The choices include a number of things: 1. The brand image, 2. Infrastructure build, 3. Acquisitions 4. New services.
A previous advertising campaign’s success led to a situation where the company couldn’t properly handle all new customers. This may have harmed Scarlet’s brand image. Therefore, to prevent another unfortunate campaign, emphasis shoud not only be on price, but also on quality. From our discussions with Scarlet, we understood that this road will indeed be taken.
As to infrastructure, Scarlet could go the way of the unbundlers. At this moment it is purely a services company, but in order to increase its grip on services and to increase margins, Scarlet could invest in their own equipment. The ADSL2 + market is stagnating, so investing here is not an obvious choice. Investing in active VDSL equipment is not economically feasible, as research has shown, due to the large number of required street cabinets. However, a business case is possible in major cities. Still, there is a third option: to become an operator on the FTTH networks of Reggefiber. That would be a wise choice for several reasons. First, the cost can be contained because the roll-out is on a city-by-city basis. Second, competition is limited mostly to lesser-known providers such as XMS, Solcon, InterNLnet and Concepts ICT. Third, the deployment of FTTH creates a ‘churn moment’; inhabitants in a town targeted for FTTH are presented with marketing efforts from Reggefiber, which creates a unique chance for newcomers to establish themselves in the market.
To invest in the mobile market seems a bridge too far for Scarlet, which has only limited scale. It could, however, follow the road that Tele2 previously went by, for example, investing in switching and other network elements.
When it comes to acquisitions, Scarlet (or rather: Belgacom) has a wide range of options. BBned is put up for sale by Telecom Italia, and if a good price is offered Deutsche Telekom is sure to be ready to discuss a sale of Online Breedband as well. Even a merger with Tele2 NL can not be ruled out; it would create an even stronger competitor to KPN and the cable operators.
In the area of services, Scarlet has a fairly unique vision. Scarlet One is a double play of Internet access (based on ADSL2 +) and telephony. With mobile telephony through the Scarlet MVNO in the Netherlands, a unique triple play of fixed and mobile telephony and broadband is put together. If Scarlet manages to market this well, they would find a level of differentiation against the competition. Scarlet would be able to extend this package with television, since parent company Belgacom has a solid reputation when it comes to the provision of IPTV over VDSL. This would imply that Scarlet could indeed invest in VDSL. This would be an especially valid option now that KPN has revealed that it intends to emphasise VDSL more than FTTH for short-term roll-outs. VDSL also offers the possibility of investment on a city-by-city basis, and only where population density and expected demand are high enough.
In conclusion, we can say that the market may welcome the ‘re-entry’ of Scarlet. The big question is how far Belgacom, which has a strong balance sheet, is ready to go in terms of investments. Acquisition opportunities abound, but the question remains whether the parties involved can agree on price. The other big question is whether Scarlet is ready to invest in infrastructure. An elegant solution could be to co-invest along with KPN in VDSL in the big cities; and along with Reggefiber in FTTH in smaller towns. From Scarlet’s commitment to the Dutch market all parties are set to benefit, as this raises awareness and acceptance of new services and infrastructure
