O2 mulls German MVNOs

By Georgina Prodhan

PARIS (Reuters) - Telefonica O2 Europe (TEF.MC: Quote, Profile, Research, Stock Buzz) is considering launching one or two more brand-name budget mobile operators in Germany to fend off a plethora of discounters started up by rival KPN (KPN.AS: Quote, Profile, Research, Stock Buzz).

O2 Chief Executive Peter Erskine told Reuters he regretted not having done more deals similar to one he did with German coffee and housewares chain Tchibo, under which the popular stores sell O2 mobile services under the Tchibo brand.

He added he could see no logic in O2's buying KPN's E-Plus German operations -- a move some analysts have predicted -- because it would be an expensive way to acquire a short-term advantage.

O2 is the third-biggest mobile operator in the competitive German market after Deutsche Telekom (DTEGn.DE: Quote, Profile, Research, Stock Buzz) and Vodafone (VOD.L: Quote, Profile, Research, Stock Buzz).

E-Plus is the fourth-biggest and operates dozens of mobile virtual network operators (MVNOs), which sell cheap calls by piggy-backing others' networks. It is followed by a range of smaller discounters.

"We could well get into one or two tailored operations with big players again, a bit like our experience from Tesco (TSCO.L: Quote, Profile, Research, Stock Buzz) and Tchibo," Erskine told the Reuters Global Technology, Media and Telecoms summit in Paris on Thursday.

"You add to the market, they're in it for the long term, they're not just about price," Erskine said.

O2's joint venture with Tesco, Britain's largest supermarket group, has over a million customers.

"What we did cleverly in the UK was that by doing Tesco we made the MVNO space quite a pig. You know, easyJet (EZJ.L: Quote, Profile, Research, Stock Buzz) came in, they flopped. Lots of others flopped, so you cluttered up the MVNO space," Erskine said.

"Perhaps in hindsight, if we'd done one other big one on top of Tchibo -- but you know I can't rewrite the script -- but what I can say is in that space we're certainly talking about perhaps looking at one or two other biggies," he said.

"Then I can see us getting the momentum in Germany again."

O2's sales in German fell last quarter for the first time in years. Erskine said this week he expected to return to revenue growth in Germany by the end of the year.

Erskine was skeptical of E-Plus's strategy.

"I have a private view that their goal was very short-term -- let's be a bloody nuisance so we get bought -- because an MVNO strategy of having 45 players isn't sustainable for very long," Erskine said.

"It gets you growth in the first 18 months... but then, where there's a lot of losers and a few winners in the MVNO space, it's a difficult act."  Continued...