Talktalk(LSE: TALK) has gone to war withVodafone(LSE: VOD) today after the company announced that it had entered into a new multi-year commercial MVNO agreement with Telefnica 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 Vodafones 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 withTelefnica will allow the company to offer customersa mobile SIM as standard with TV packages for no additional cost.
Talktalk already has four millionconsumer and business broadband customers to which it can offer its quad-play bundles. 10% of TalkTalks customers have already accepted quad-play packages, with many moving on to the companys mobile service.
But its 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 BTs 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 Vodafones quad-play offering is developing. The groups acquisitions ofKabel 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, its 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. Whats more, a price war could begin to chip away a profit margins, something BT willwant to avoid as it continues to fight a costly pay-tv war withSky.
Nevertheless, BT and Vodafone are some of the telecommunications sector’s largest players and they are unlikely to disappear any time soon. Moreover, the defensive nature of the two telecom giants makes them the perfect fit for anyretirement portfolio.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
