(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Quentin Webb
LONDON, March 21 (Reuters Breakingviews) - Europe’s telecoms
firms are finally getting Brussels to ease up. It’s an exciting
moment for this fragmented sector, which bankers have long hoped
would generate a wave of M&A. But the European Union should not
give too much ground.
For years, European telecoms have been tightly policed, and
with good reason. Former landline monopolies fought to stay on
top, while mobile customers were gouged with big charges for
calls overseas (“roaming”) or to rival networks (“mobile
termination rates”). Such behaviour prompted regulators to step
in to keep competition fierce and prices low. Now the sector is
reeling, and telecoms bosses want gentler treatment.
Of course, the sector’s problems aren’t all to do with
regulation. Economic weakness and technological change have hurt
too. So have self-inflicted wounds from being too greedy in
takeovers, or too generous to shareholders.
The combined effect is clear. The top telecoms in the euro
zone’s five biggest economies are now worth 123 billion euros,
versus nearly 300 billion in late 2007. And payouts to investors
have shrivelled. Sector dividends and buybacks will be 24.4
billion euros this year, Citigroup says, roughly half their 2011
Arguably, these financial pressures have constrained
investment in super-fast fixed and mobile broadband. That
threatens the EU’s “digital agenda”, a series of ambitious goals
such as connecting every household to fast broadband by 2020.
The package could cost up to 221 billion euros, the European
Investment Bank reckons.
So phone companies want the European Commission, the EU’s
executive, to deregulate, while permitting higher and more
predictable returns, and more mergers. Executives have found a
sympathetic ear in telecoms supremo Neelie Kroes, who worries
the EU is becoming a digital backwater. Adding to the optimism,
European leaders last week called on Kroes and Co to help bring
about the “digital single market”.
Precisely what this means is moot. Consumers may never be
able to shop around for a cheap mobile contract in, say,
Bulgaria that works at one price across the EU. That would cause
havoc in higher-cost countries. But decently priced wholesale
broadband agreements could make it easier and cheaper to flit
across the bloc, while paying near-local rates.
One big dream is to lift the taboo on deal-making. With four
or five major mobile operators in most big European countries,
“in-market” consolidation would bring big cost savings, and
greater pricing power. A Vodafone (VOD.L)-Telefonica (TEF.MC)
tie-up, say, would consolidate many markets, including Britain,
Spain, Germany, and the Czech Republic. But consolidation has
been permitted only grudgingly - as in Austria, where a step
down to three players came with stiff conditions.
The EU remains cautious. Joaquin Almunia, the competition
boss, does not seem persuaded. He said recently that phone users
were largely confined to national markets with “only” a few
operators, high barriers to entry, and large variations in
Despite the industry’s woes, Almunia is right to push back.
Creating a series of national oligopolies would punish consumers
to reward previously profligate telecoms, undermine previous
policy, and not do much to tear down national borders either.
Instead, Almunia suggests international consolidation would
be good if it brought “lower prices and new and better
services”: showing his focus is squarely on the customer rather
than on aiding an industry recovery. But until markets become
more unified, cross-border deals with little overlap - like the
hoary idea of combining France Telecom FTE.PA and Deutsche
(DTEGn.DE) Telekom - make little sense either. Barring increased
purchasing power, there would be scant savings from combining
separate national fiefdoms, each with local regulators, networks
and management. And governments may baulk at such deals anyway.
Synergies without deals
So the focus should be on helping telecoms get the benefits
of scale without weakening competition. The Commission could
encourage more deals that cut costs, by sharing network
infrastructure such as masts and base stations. One template is
Britain, where four operators share two networks. Multinationals
could try to unite their own disparate local networks too. Or
perhaps networks could even be sold to telecoms-gear makers or
financial investors, leaving “asset-light” phone companies.
Other, more modest, industry demands would help ease the
pressure and move the sector towards a genuine single market,
where consolidation might eventually be more defensible. A new,
pan-European watchdog could help to accomplish this, and to rein
in overly aggressive national regulators.
Mobile operators are right to feel aggrieved about wildly
differing terms for spectrum auctions, sometimes run to maximise
proceeds, like a painful 3.8 billion euro sell-off in the
Netherlands. Next time round, handing out newly freed-up 700MHz
spectrum cheaply across the bloc would help operators cope with
a coming data deluge, and make it easier to offer devices that
worked across Europe and Asia.
At least things already look marginally better for the
sector. Markets are rallying and the mobile charge cuts are
nearly over. “Quad-play” packages are helping some companies
regain customers. And Kroes is taking a softer stance on new
fibre broadband investment. For now, the M&A pitchbooks should
go back in the drawer.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- European Union leaders backed a shake-up of the bloc’s
telecommunications markets at a March 14-15 summit. Telephone
companies have pressed states and officials such as Neelie
Kroes, the European Commission’s telecoms chief, to take a
softer stance on issues such as industry mergers.
- The summit’s conclusions said: “the European Council notes
the Commission’s intention to report well before October on the
state of play and the remaining obstacles to be tackled so as to
ensure the completion of a fully functioning Digital Single
Market by 2015, as well as concrete measures to establish the
single market in Information and Communications Technology as
early as possible.”
- Kroes’ proposals will be released in June and will be put
to a summit of EU leaders in October.
- ETNO, the European Telecommunications Network Operators'
Association, said “bold reform” was needed, including “further
deregulation to reflect changing market realities and improve
incentives for investment, while at the same time allowing for
more consolidation to achieve the necessary scale for a
sustainable and competitive EU industry”.
- Neelie Kroes' blog link.reuters.com/qax76t
- Reuters: EU stares down rocky road to single telecoms
- For previous columns by the author, Reuters customers can
click on [WEBB/]
(Editing by Chris Hughes and Sarah Bailey)
Keywords: BREAKINGVIEWS EU/TELCOS/
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