Supantha Maharjee and Elvira Poloina

STOCKHOLM/MILAN – Consolidation is a growing topic among European mobile carrier executives. The cut-throat price wars that drive up debt and restrict funds for 5G network upgrade projects have led to several senior executives voicing support.

Telefonica, Spain (NYSE:), has been raising concerns about mergers for many years. However, Telenor and Vodafone have joined them recently.

This topic is expected to feature high on the agenda at the Mobile World Congress in Barcelona later this month. Vodafone, Britain, noted that regulators have realized the importance of investing because of the urgent need for reliable and fast networks, as highlighted by the pandemic.

Why is it called Solidarity?

With only four European operators in small countries, the telecoms market can be fragmented.

Contrary to this, for instance, the US three major operators have large customer base and are able to introduce new services like 5G faster to the market.

The Ericsson (BS) Mobility Report revealed that 5G accounted only for 6% in subscriptions across western Europe at the end of 2021. North America accounted to a fifth.

According to analysts, the smaller market would be more profitable if there were fewer players.

What IS THE MAIN PROBLEM?

Mergers will reduce the number operators. However, regulators worry that it could result in lower quality, less choice, and higher prices for consumers. This is especially true if local players combine forces within one market.

According to ING analysts, companies must show that any merger will benefit consumers.

The European Commission in 2016, which blocked CK Hutchison’s acquisition of Telefonica’s British mobile unit O2 ($12.6 billion) said that in November it would be reviewing its competition policy guidelines.

Massimo Comito, independent TMT consultant said that regulators aren’t showing any special willingness to make digitalization and upgrade of digital networks a reality. He pointed out the many billions of Euros the European Union makes available. They want to preserve competition.

Telefonica and Liberty Global formed an alliance in Britain, combining O2 with Virgin Media.

WHAT ARE TELCOS DOING TO RAISE MONEY?

Telecommunication operators are realizing the worth of their masts as infrastructure investors, across Europe and beyond.

Telefonica has sold its towers business to Vodafone for 7.7 Billion Euros. Vodafone also raised billions floating its infrastructure unit. Deutsche Telekom (OTC-) is planning to sell the radio business very soon.

It is possible to dispose of non-core assets.

ARE PRIVATE INVESTORS ELIMINATED?

Private investors were at the forefront for recent European telco deal-making, with Franco Israeli billionaire Patrick Drahi acquiring Altice Europe and eventually a 16% stake in BT.

Xavier Niel (founder of Iliad) made a $3 billion Euro bid last year to delist his firm. The company is currently circling Vodafone’s Italian subsidiary.

Cinven, KKR, and Providence bought Spain’s MasMovil in 2020 for 5 billion Euros. Apax Partners purchased T-Mobile Netherlands for 5.1 million euros from Deutsche Telekom last year.

Although private equity firms do not face the same problems as traditional telco operators in competition, they are also less likely to have the same cost-saving opportunities than another player should they merge, according to Nikos Stathopoulos (partner at BC Partners, chairman United Group).

WILL IT HAPPEN??

Vodafone chief executive Nick Read claimed that Vodafone was looking at rivals in several European markets. He cited Britain, Spain Spain, Italy, Portugal and Portugal as examples. Orange said France will see the number drop from 4 to 3.

While countries such as the UK, Sweden, Spain, and Germany have four mobile operators, other countries such as Norway, Belgium, and Spain have three.

Stathopoulos claimed that three players would be natural for four of his teammates.

The larger question is whether regulators will be content to reduce the number of markets from three to two and maintain competitive tension.