Tele2 takes on new challenger role with unlimited plans, turning mobile data into commodity

Tuesday 16 May 2017 | 12:39 CET | Market Commentary
Commoditisation has been around for some time in the telecom sector. After the launch of Skype in 2003, market watchers were already calling voice 'just another application'. We all know what WhatsApp subsequently did. In the Netherlands it led to a series profit warnings and dividend cuts at KPN, followed by a rights issue. 

Tele2 is now adding unlimited mobile data at an attractive price. This turns connectivity into a commodity, a utility which can hardly be differentiated. Iliad took a similar stance upon its entry on the French mobile market in 2012, with its low prices leading to management changes, rounds of job cuts and merger talks. With Tele2 NL finally taking up the challenger role, a similar picture may emerge on the Dutch market. Consumers won't have anything to complain about though.


Telephony, both fixed and mobile, has already become a commodity. Termination rates still stop VoIP from being completely free. Unlimited calling costs these days around EUR 5-10 per month, depending on whether its fixed or mobile and the destinations included. With the steady decline in MTA/FTA, the price will continue to fall. Alexa Calling from Amazon is the latest development, adding (video) calls to help stimulate sales of the e-tailer's popular Echo speaker. WhatsApp has had a similar effect on SMS, which is essentially offered free these days. Facebook Messenger is trying to use chat, as already seen in China, to develop a web platform for any number of web services. Google's Duo (video calls) and Allo (chat) are an attempt to break Facebook's hegemony in this area. In short, communication in a broad sense, including social networking, is the domain of the internet majors (Facebook, Amazon, Google, Apple, Microsoft), reducing the role of the telecom operator to ISP. 

Ex growth

With voice and SMS no longer the cash cows of before, connectivity is the only remaining profitable service. In the fixed market, even among cable operators, broadband is also the most important service. Value-added services such as TV/video are mainly for differentiation, not profits. The impact of YouTube and Facebook is limited to short-form content, both in video and music. The value of long-form video content is undermined by unlimited offerings from the likes of Netflix and Amazon, which offer low prices thanks to global scale. This makes the decision by companies such as BT and Liberty Global to invest live sports understandable, as there is no price pressure in this area.

International roaming as a profit generator is also over. For the rest, markets are slowly saturating, with only growth in the population and number of households can provide some organic growth. Connectivity for IoT devices is also looking increasingly less like a major growth story. This all means poor growth prospects for the sector and increased pressure for consolidation. 


Unlimited mobile data at attractive prices also removes two important barriers to mobile competing with fixed: the volume cap and the high price per MB. Of course, this hasn't made the fixed line completely irrelevant; the need for a stable connection and intensive use make fixed necessary still. But consumers will increasingly feel like they are paying double for a broadband connection. 4G, and later 5G, with their ever-increasing speeds, may lead to price pressure on fixed broadband.

Higher ARPU?

For the Dutch market, we can ask what the impact will be of Tele2's unlimited plan at EUR 25 and other changes to its portfolio. T-Mobile, which was first with unlimited mobile data but charges a higher EUR 35 per month, will have to respond. KPN and VodafoneZiggo are likely to intensify their focus on converged packages of fixed and mobile services. They benefit from the lock-in of quad-plays and can offset a cut in mobile prices with increases in fixed rates.

Unlimited usage is clearly attractive, but what is the impact on ARPU? This first is downwards pressure as subscription prices are lower. Later two positive effects may emerge:

  • The unlimited plan at EUR 25 may attract customers to upgrade from lower tiers. It is only EUR 4 per month more than Tele2's 10 GB plan. 
  • Even if ARPU does not increase, revenue may benefit from a volume effect. It seems likely that Tele2 will be able to grow its market share with the new offers.


The question remains whether Tele2 and T-Mobile Netherlands will develop their fixed offers to compete more intensively on the converged market. Tele2 is stubbornly sticking to its focus on mobile data and letting its fixed network deteriorate. The new CEO Jon James, who comes from Swedish cable operator Com Hem, will need to show whether he wants to position Tele2 as a challenger also on the fixed and multi-play market. 

Free Headlines in your E-mail

Every day we send out a free e-mail with the most important headlines of the last 24 hours.

Subscribe now

::: add a comment