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Tuesday, 24 May 2011

T-Mobile seems the second victim of a failing earnings model: scraps 500 jobs in The Netherlands alone

A few weeks ago I wrote in “The unbearable heaviness of being…” already about the dark clouds that were gathering above the heads of the behemoths in the telecom business KPN, Vodafone and T-Mobile. These clouds were formed by the telco company’s customers using free downloadable and (almost) no-charge apps and tools to make telephone calls or send SMS’s, instead of the dearly paid services offered by the telephone companies itself: Skype calls instead of normal telephone calls and Whatsapp messages instead of a normal SMS . I wrote:

As a CEO of a large mobile phone company you suffer from the fact that:
  •  Skype took away your expensive paid-per-minute phone calls (about €0.15 per minute) inside your own country and network
  • Skype took away your extremely expensive paid-per-minute roaming phone calls (about €0.50 - €1.00+ per minute) for calling abroad in and outside the European Union 
  • Twitter / Whatsapp / Ping took away your even more expensive Short Message Service (SMS): €0.20 for sending 250 bytes(!) of information. 
  • Youtube and other streaming video applications are sucking up your bandwidth, while your customers are complaining about the slowliness of your services. 
  • You were so stupid to offer your customers unlimited bandwidth usage on their smartphone, if they would sign a 2-yr contract and buy an Apple iPhone for a lousy €150 and €29.95 per month 
  • Everybody is angry with you, when you pinch off Twitter / Whatsapp / Skype and Youtube from your mobile internet access. 
  • Your shareholders ‘smell’ that your earnings model is under heavy pressure from these developments and they are fearing a losing investment if they keep your stock. 
And now it seems that this changing behavior of its customers claimed the second victim in the Telecom business, after Dutch telecom provider KPN had already announced heavy job losses.

The Dutch financial newspaper “Het Financieel Dagblad” ( writes that the Dutch branch of T-Mobile is planning on scrapping a quarter of its jobs (link in Dutch). Here are some pertinent snips:

T-Mobile scraps quarter of its jobs in The Netherlands 
Telecom company T-Mobile scraps about a quarter of the 1900 jobs at its subsidiary in The Netherlands, after revenue and profit of the company dropped strongly at the start of this year. People involved in this matter announced this to this newspaper under condition of strict anonimity. 
The earnings model of the telecom business is currently under fire, due to cannibalisation of paid telecom services by free chat services and social media. On top of that, T-Mobile insufficiently succeeds in keeping the costs under control. 
The subsidiary of Deutsche Telekom is – after KPN – the second large mobile phone provider to queer its own pitch deeply to turn the tide of dimishing revenues and profits. 
T-Mobile initially trivialized the alarm signals that were sent out by KPN. At the beginning of May,2011, however, the Dutch branch of the German company had to state that the Q1-revenues dropped by 5%, in spite of a substantial increase of customer numbers. Profits dropped almost with 20%. A spokesperson of T-Mobile states, when asked, that the company looks for measures to increase efficiency, but that he is not aware of actual numbers of jobs to be lost. 
The telecom industry suffers from strict regulation of tariffs by the local and European government and a structural diminishing of SMS and speech traffic. Besides that, T-Mobile lost the exclusive right in The Netherlands to sell Apple iPhones. Customer loyalty is under pressure since Vodafone and KPN are also allowed to sell the appliance.

All three smartphone providers in The Netherlands – KPN, Vodafone and T-Mobile –  try to gain more revenues by:
  • Either pinching off popular no charge-services, like Ping, Whatsapp and Skype in their standard smartphone packages they sell the most.
  • Or charging their customers more for the data they transfer.
Besides that, Vodafone wants to ask Apple and Google for sharing in the investments in the European smartphone infrastructure.

Two weeks ago I wrote: 
Pinching off all free services that threaten the phone company’s cash cows, is just as succesful as putting your thumb in the dykes and levies when the Mississippi is flooding. It might help for a while, but in the end the water runs over you, or in this case: the competion that does offer access to the free services of internet for a low fixed price per month. 

That the competition than will not earn as much money as the original telco’s did, is something that the new telco companies can account for in their business models. But the old telco’s will not win this battle in the end when they don’t change their attitude and behavior.

I am pessimistic about the willingness of Apple and Google to invest in the European smartphone infrastructure, as these companies have their own issues to deal with and can live without investing top dollar into a telephone network.

I’m even more pessimistic about the earnings model of the European mobile phone industry, if the number of smartphones remains increasing, as it does now. Instead of telephone calls and SMS services being cash cows that earn the telephone companies billions of Euro’s every year, it seems that mobile internet is turning into a utility that just needs to be there with acceptable speeds for the lowest price. The telephone services then disappear “in the cloud”, out of grasp for the telephone providers as we knew them until now.

For the mobile phone providers I would say: “it was a nice party, as long as it lasted”.

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