Talktalk (LSE: TALK) has gone to war with Vodafone (LSE: VOD) today after the company announced that it had entered into a new multi-year commercial MVNO agreement with Telefónica UK Limited, the owner of the O2 mobile brand.
This significant commercial relationship is designed to help Talktalk build its quad play offering in a direct attack on Vodafone’s current market share.
Quad-play battles
Quad-play packages are the latest thing in the multimedia world. These packages offer consumers a mobile contract, pay-tv package, broadband and landline connectivity in one package, making the all-in-one package cheaper for the consumer and more convenient.
Vodafone will launch its own quad-play bundle next year as it launches its own TV and home broadband package. However, Talktalk now has a significant lead over the mobile giant as the new agreement with Telefónica will allow the company to offer customers a mobile SIM as standard with TV packages for no additional cost.
Talktalk already has four million consumer and business broadband customers to which it can offer its quad-play bundles. 10% of TalkTalk’s customers have already accepted quad-play packages, with many moving on to the company’s mobile service.
But it’s not just Vodafone and Talktalk fighting it out for the quad play market. BT (LSE: BT-A), which has long dominated the fixed-line and broadband markets, is developing its mobile offering and is planning to roll out a quad-play bundle next year.
On hold
Vodafone is waiting for BT to make the first move in the quad-play market before the company launches its own packages. One of the key battle grounds here will be BT’s new mobile network, which analysts believe will spark a price war when it comes online.
BT has tried to break into the mobile market before with little success. However, the company is now planning to use its vast network of WiFi hotspots around the country to support a new mobile network. BT plans to use these hotspots to offer customers mobile contracts with huge, low-cost data packages, something Vodafone will struggle to compete with.
Still, outside of the UK Vodafone’s quad-play offering is developing. The group’s acquisitions of Kabel Deutschland in Germany, and Ono in Spain have given Vodafone a pre-built network of customers across Europe, which should help the company drive growth across the continent.
Cloudy outlook
Unfortunately, as BT, Vodafone and Talktalk all go to war with other, it’s going to become difficult to predict the outlook of these three telecommunications providers. For example, as competition intensifies, marketing spending is going to increase and customer churn is also likely to rise. What’s more, a price war could begin to chip away a profit margins, something BT will want to avoid as it continues to fight a costly pay-tv war with Sky.
