KPN One Move Closer to Entering the Spanish Market

Implications: - Vodafone, Telefonica and Orange will see increased competition in the Spanish mobile market - this time from a player with a good track record (Germany, Belgium) of working in markets with multiple MVNO's - voice and text messaging prices will drop in the Spanish market hurting margins

Analysis: The Spanish regulator CMT granted Dutch operator KPN 200,000 mobile numbers in Spain. This is a step closer to becoming an MVNO (mobile virtual network operator). The numbers are those which E-Plus Moviles Virtuales, KPN's Spanish subsidiary, will begin to allocate to its customers when it starts up. It is expected that KPN will close a network deal with Orange.

Spain has one of the largest mobile markets in Europe, underwritten by a population of more than 43 million. Strong growth in 2005 and 2006 was encouraged by competition between the three main players, which has driven down the cost of services. The market saw some major changes in 2006. Orange has been able to exploit the resources of its parent company France Telecom to secure the lion’s share of net adds and overtake Vodafone as the number two player. After considerable delays the MVNO market was opened in October 2006, and the emergence of a number of licensed operators in 2007 promises too intensify competition further.

In other markets as The Netherlands, Belgium and Germany the MVNO market has been growing immensely. The Netherlands knows over 40 and Belgium over 30 MVNO's. In these markets, MVNO's are focusing on niche markets, are often no thrills (sales through the internet only) and low costs. It hurt the network operators, even though some of them actively support MVNO's on their networks. KPN has a lot of experience through it's German subsidiary E-Plus, which launched various brands in the German market and successfully.

It will be interesting to see if KPN can copy this success in the large Spanish market, where there is relatively little competition. However, it makes a difference if you don't have a network: for product differentiation an MVNO is always dependent on a network supplier.