Summary:

Operator partnerships for services are notoriously hard to get right: and it looks like the mobile payments and advertising joint venture be…

Ship Hits The Rocks
photo: Perras1d, Flickr

Operator partnerships for services are notoriously hard to get right: and it looks like the mobile payments and advertising joint venture between Everything Everywhere, Vodafone and O2 in the UK will be no different…

Before those operators have even applied for clearance from the regulators, the UK’s fourth-biggest operator, Hutchison Whampoa-owned Three, has filed a complaint with the EU to stop the venture dead in its tracks. [Updated with Three comments below.]

Three’s issues, which were raised with the EU’s antitrust authority, focus on the dominance that a partnership between the three biggest operators would have in the market, particularly around nascent areas like mobile payments and related mobile marketing and advertising.

Operator partnerships to enable services like mobile payments have fallen flat many times before — with politics, an inability to commit to a venture with competitors, and technology/consumer demand issues being some of the key gating factors. But if this one just happens to be the one that clicks, the threat that Three could end up cut out of a lucrative new service could be very real, indeed.

Three’s general counsel, Stephen Lerner, laid out the problems in an email (full copy below): The “cozy collaboration” between Everything Everywhere (itself a JV between Orange and T-Mobile), O2 and Vodafone (NYSE: VOD) would lock Three out of the equation for such services. Leaving very little room for negotiation, he further said that the EU “should not allow this type of collaboration to go forward under any circumstances.”

Three believes that while it is getting shut out from new services, bigger forces might be at play. Three claims that the other operators want to shut it out because of the threat it poses to their subscriber growth.

Three currently competes with the other operators by offering very cut-price services: its voice and data plans for the iPhone, for example, are the cheapest in the UK market today. It says that its strategy is working, as it is a “net importer” of customers from the other operators. The biggest attrition is coming O2, it tells mocoNews: for every one Three customer that asks to port his number to O2, Three gets four O2 customers requesting to port to Three.

When the three big operators first announced the as-yet unnamed payment venture, it conspicuously left out any mention of Three by name, but vaguely made promises that it would open the service up to other operators after launch. It’s position was that it was using services that were already built up by the individual operators involved — which might be why Three, which has no advertising or mobile payment initiatives at the moment, was left out. As separate entities no one operator had the scale to execute a service in the way that they would if they joined forces.

“We’ll be customers of the venture, anyone can be,” explained Ronan Dunne, CEO of O2. “[O2, Vodafone and Everything Everywhere] have actually built and developed capabilities, and we’re putting this together [and] creating a market for those who don’t have the scale to do it. The JV makes it easier to access this.”

At the time of the announcement, the then-CEO of Three, Kevin Russell, said that he was contacted by the other operators about 30 minutes before their news broke.

What’s interesting about Three’s letter to the EU is that is has pre-empted any formal attempt by the bigger operators to contact the EU for clearance on the merger. That is only due to happen later in the year.

But Shaun Gregory, who runs O2 Media — the advertising and marketing arm for O2 — says that the three operators have already initiated “planning and work” around the JV. “The regulatory clearance will be our first hurdle,” he tells mocoNews.

At the time of the announcement in June, the operators admitted that marketing and advertising may well be the first fruits to come out of the JV — rather than mobile payments enabled by NFC. The idea will be to create a critical mass of subscribers (combining all three operations) so that campaigns could be run across all simultaneously, without the need to negotiate separate deals.

Three’s full statement:

“The planned and explicit exclusion of Three from the proposed UK mCommerce joint venture is designed to weaken Three’s ability to be a competitive force in the UK and denies the initiative’s claimed ambition to be a ‘One Stop Shop’ for mCommerce.

“Instead of competing for the benefit of consumers, the three operators that hold 90% of the UK market have engaged in a cosy collaboration and closed ranks against competition. The Competition authorities in Brussels should not allow this type collaboration to go forward under any circumstances.

“As the UK’s 3G pioneer Three’s track record of innovation in internet mobile services is clear. Excluding the maverick raises serious competition concerns. It has serious implications for both consumers and wider business as the internet continues to move mobile.

“The Commission allowed last year’s consolidation in UK mobile, but kept a watching brief on further threats to consumer choice and competition in the UK.

We’re asking the Commission to take a clear view of what is at stake for consumers and the dangerous precedent this move could set across Europe for the incumbents to freeze out challengers.”

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