Demand for fast networks forces telcos to team up

To ramp it up quickly telecom groups will have to join forces, which may give some urgency to merger and acquisition activity.

Arndt Rautenberg and Ewan Parry at management consultant firm OC&C said groups that have already established leading positions, such as Vodafone, T-Mobile, France Telecom and Telefonica have an advantage as possible consolidators as they can benefit from large international synergies.

Analysts at Goldman Sachs said in a client note KPN and TeliaSonera are considered most likely prey should M&A activity in Europe pick up.

IT'S IN THE DNA

In the meantime, new initiatives are being explored. In North America for instance Telus and Bell Canada are upgrading their 3G network together in a 50-50 joint venture and their consumers can use the networks no matter where they are.

The initiative is seen as the first networks sharing strategy based on building a network from the ground up.

"I think that is a model that we are going to see more and more, particularly in a market where there is a clear underlying demand for high bandwidth and all of the operators have the ability to address it at once," said technology director at the GSM Association, Dan Warren.

Still, the hunt for partnerships will force telecom operators to take a hard look at their comfortable old business models if they want to keep up with shifts in technology and consumer demand.

"It is very hard for operators to change their DNA but they must if they want to compete," said analyst Chetan Sharma of Chetan Sharma Consulting.

Especially incumbent telecom operators whose entire management and business model is based on voice revenue growth are finding it hard to accept that this model is obsolete.