Microsoft and Telia Sweden have signed the first Xbox Game Pass Ultimate bundle deal in Europe, which allows Telia to offer the service to its customers with a month for free. Xbox Game Pass Ultimate is the top tier games content subscription offering from Microsoft which supports download of games to Xbox consoles and Windows 10 PCs, as well as streaming to Android smartphones and tablets. Microsoft is in active discussions with numerous telco operators and has already signed a more substantial Game Pass-related deal in South Korea with SK Telecom.

Operator deals are one pillar of Microsoft's Game Pass user acquisition strategy 

Microsoft is using cloud gaming distribution technology to place its Game Pass content subscription service in front of new audiences and into country markets where Xbox is under-penetrated. It also wants to add value to existing Xbox and PC gamers by offering new use cases for on-demand consumption on connected devices. Operators also have network and data center capability that can support Microsoft's cloud gaming efforts, often being closer to end users or offering the ability to use edge compute to improve quality of service.

At present, the World active console gamer user base, when taking into account device ownership overlap, is estimated to be in the 150-170 million range. While Microsoft has also pursued a PC and mobile games strategy, its Xbox Live monthly active users across all device types stands at around 100 million with around half of those users on console. With over 2 billion gamers globally, there is clearly a lot of headroom to potentially expand outside the current Xbox reach, although the competition for gamer attention is huge. Microsoft believes that there are 100s of millions of gamers out there that want access to its Xbox games, and it is going ahead and testing the market to confirm this assumption. 

Microsoft is using its cloud gaming technology and three key partnership approaches to expose its games to a wider audience:

1. Through social networks and integrated streaming video platforms
2. Through telco relationships in markets where partnering to deliver its cloud gaming service makes more commercial and logistical sense
3. Through consumer electronic relationships where there is a symbiotic relationship that benefits both parties

Games subscription services have substantial headroom for growth in Sweden

Like other European nations, gaming is a well-penetrated entertainment activity in Sweden. Ampere's consumer research shows that 79% of 18-64 year old internet users consider themselves gamers. Ampere Games research also shows that there were a little over 900,000 total games service subscriptions active in the market at the end of 2020, but that user base is growing quickly, expanding 38% during the year. 

Microsoft's Xbox Game Pass user base only represents 12% of that subscription base in the country partly due to the relatively weak sales of Xbox One consoles in the market, so a partnership with Telia targeting mobile subscribers that leverages Microsoft's cloud technology is a legitimate way to reach a much broader audience. Telia had 6.3 million mobile subscriptions at the end of 2020 - even single digit percentage penetration of this subscription base would have a significant impact on overall Xbox Game Pass subscribers in the market.

Telia is operating in a very mature mobile services market; Xbox Game Pass Ultimate helps it differentiate and potentially grow ARPU 

At the end of 2020, there were over 15m mobile subscriptions in Sweden, with Telia representing 42% of this base. Telia's year-on-year growth in mobile subscriptions reflects the maturity of the market but at 1.9% is slightly ahead of the industry average. Still, Telia is looking for applications, content and services which can drive adoption of new 5G services, maintain stickiness and increase ARPU, so this deal makes commercial sense from that perspective. 

A bundling approach like this takes minimal investment compared to developing an entirely new branded service as shown by other operators across Europe, for example Deutsche Telekom's MagentaGaming or Telecom Italia's TIM Games, and is likely to be short term in duration. However, bundling does still offer many of the adjacent commercial benefits that would also be delivered through offering a cloud gaming service.