TeliaSonera AB (OTCPK:TLSNF) recently announced (.pdf) that it has entered into a joint agreement with Norway’s Telenor ASA (OTCPK:TELNF) to build up a world-class wireless network in Denmark. The deal has both of these companies sharing the costs of building up and maintaining the network, which will be jointly controlled by both firms.
The two companies will not be establishing a joint venture or jointly controlled company to market the new network to customers. Instead, both companies will be competing against each other in the marketplace with each company selling wireless services on this new network as their own.
This could offer investors a unique opportunity to profit off of the growth in the consumption of wireless data. Once the new network is complete, both TeliaSonera and Telenor stand to benefit as consumers, seeking a higher performance data network for their mobile devices, switch over to TeliaSonera or Telenor. Thus, both of these telecommunications companies stand to benefit from the new customers that this network could attract. The beauty of this arrangement is that neither company will have to pay the high costs of building and maintaining this wireless network, since these costs will be jointly shared between the two companies.
Perhaps the most difficult thing for investors to determine is which of these two companies will benefit more from this partnership. TeliaSonera and Telenor will both enjoy a higher profit margin on a per customer basis than they would if the two companies had to each incur the full costs of building and maintaining a network of this quality. A very real possibility exists that one of these companies will attempt to undercut the other in terms of price. Price is rarely the sole determining factor when a consumer chooses a wireless plan, however. It would be wise to watch each company’s marketing strategy.
One possibility is to invest in both TeliaSonera and Telenor. Although these two companies together would be fronting the full cost of building and maintaining this network, each will still have the higher per customer profit margin that could make this a net win for an investor. Neither of these two companies is a pure-play on Denmark or Danish wireless growth, so results from other markets could potentially impact any investment. This is still an excellent business partnership though, one that has the potential to bring profits to both TeliaSonera and Telenor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.