Kate Holton, Paul Sandle

LONDON, Reuters – Vodafone (NASDAQ) boss Nick Read thinks that competition regulators have made it easier for them to accept takeovers. Now all they need to do is test this theory and trigger a deal which could bring about a wave European consolidation as well as a relief to long-suffering shareholders.

Read claimed this month that while he supports competition, “hyper-competition” in European mobile markets is limiting the ability of the industry to develop the digital networks required to match the United States or Asia.

Vodafone, a German mobile operator Mannesmann bought for over 100 billion pounds (£135 billion) in a landmark merger deal. Vodafone is being pressured to reduce its debt and boost its return after years of falling behind rivals.

Vodafone (OTC:), Telefonica (NYSE :), and other rivals Orange, Deutsche Telekom, Telefonica (NYSE 🙂 all believe takeovers or joint ventures will help to stabilize a market that is fragmented and where capital investment costs often exceed returns.

This is something Europe must do to recover from the pandemic. It’s likely that this topic will be high up on the agenda at next week’s Mobile World Congress in Barcelona.

Since the beginning, regulating bodies have been committed to limiting operators to four in key markets. This is especially true for Europe’s Margrethe Vestager. However, as political attention shifts towards investment and competition supremo becomes more important, mixed signals are being sent.

“It’s going be tough for a CEO to go to and test them, and Nick is revving his self up to go to and test Vestager for certain,” said the head of one European telecoms company to Reuters.

Cevian, Europe’s largest activist investor has created an impetus to change Vodafone. The company has 44.3 million euros in net debt. It has seen a 17% decline in share prices since Read assumed control in 2018.

Joakim Reiter, Vodafone’s regulator chief, said that policymakers have recognized the importance of supporting the sector. He suggested that spectrum auctions could be used to stimulate investment.

He said that consolidation was the next step.

He said that three years ago four market players seemed almost like a religion. However, everyone seems to be saying, let’s face it, it is a fact that we all now know it. And we’ll see what impact it has.

Vestager will be the one to decide. Vestager is the European competition commissioner who has been able to challenge the likes Apple (NASDAQ:), and Google (NASDAQ.).

This month, she told Reuters Breakingviews she preferred “market analysis” to “magic number”.

However, before banks and businesses get too excited she said: “So far, our experience still holds that it’s competition that drives for investment instead of consolidation.”

The British telecoms regulator stated this month that it is not committed to maintaining four networks. This comes seven years after being vocal against Hutchison’s purchase of Telefonica’s UK unit O2. Europe blocked the acquisition.

Analysts believe that a review of the law surrounding mergers will provide more clarity this year.

SPANISH EXIT

Read, who is currently in negotiations with several players on multiple markets, identified four of Vodafone’s 21 countries that are operating, namely Italy, Spain and Portugal.

Portugal is home to three network operators while the other countries have four.

According to one source, Vodafone sources and bankers, it makes sense to start a deal in Spain. Orange and MasMovil are all looking at merging in various ways.

A Vodafone investor spoke on condition that he remain anonymous and said that Vodafone had to decide whether Spain was for sale or not. Abrdn was a Top Ten Investor and said it supported Vodafone’s plan to create value by creating deals.

Vodafone Time in Italy could be bought in a quick deal in Spain. It recently turned down an offer of 11 billion euros from Iliad Partners and Xavier Niel.

Both markets have been shaped by fierce competition. According to Asstel (Italian industry group), telecoms sector revenues in Italy fell almost one third from 2010 through 2020 and Spain lost 26%.

Vodafone could participate in an Italian joint venture, or any other tie-up. This would come after eight quarters of declining earnings. But it wouldn’t reduce the complexity or deliver the cash lump sum associated with the sale.

The CEO of telecoms said that “you’re basically cutting down your losses and moving forward with no upside.” He will need to choose quickly, though it is a difficult decision.

Credit Suisse Jakob Bluestone, analyst at SIX, stated that some combinations are still difficult from an antitrust perspective.

According to him, Vodafone and all other industry members will only ever know if there have been any changes by bringing a case to Brussels. If you do not play, then you cannot win.”

Vodafone will defend Read’s argument that the former finance director of the company, aged 58, has simplified the portfolio by grouping African assets into one entity, and listing the towers business.

One analyst asked Read last summer whether Vodafone, the company responsible for spreading its red logo all over the world via some of the most significant corporate transactions ever made, had any plans to reinvent the industry.

Read answered, “We’re an empathetic telco.”

($1 = 0.7380 pounds)