Mobile in-market consolidation (mergers or acquisitions between two mobile players in the same country) is gaining momentum in Western Europe, as the commoditisation of traditional telecoms services drives down revenue, markets reach saturation and competition and regulatory measures impact on operator margins.
This article represents a follow-up of Analysys Mason's recent Viewpoint, "Mobile in-market consolidation in Western Europe: impact of recent mergers on margins and market share," which highlighted the following major outcomes of recent mobile in-market mergers.
- Such deals, typically between the No. 3 and No. 4 mobile players, have resulted in incumbents winning greater mobile subscriber market share.
- The merged entities have generally improved their EBITDA margins, bringing them closer to those achieved by incumbents.
This article adds an analysis of the impact of in-market consolidation on mobile retail revenue, and highlights the following major points.
Most mergers in Western Europe have been between the No. 3 and No. 4 mobile players
Eight mobile in-market consolidation deals have taken place in Western Europe during 2005–2013, of which two are still subject to regulatory approval: Telefónica/KPN in Germany, and Hutchison 3G Ireland/Telefónica in Ireland.
Figure 1 shows that mergers have mainly taken place between third and fourth players. However, an easier regulatory environment in Western Europe in the future might lead to more consolidation activity by incumbents, as a means of achieving sustainable margins, cash flow and investor return in large markets.
Figure 1: Mobile in-market consolidation deals, Western Europe, 2005–2013 [Source: Analysys Mason, 2013]
Reduced voice price competition in the Netherlands and the UK followed mobile in-market consolidation deals
Figure 2 splits Western Europe's mobile markets into four groups, according to the number of operators in the market during the whole period, and whether the number of operators changed. They are markets that, during 2005–2013, had:
- A stable number of operators (three): Belgium, Finland, Portugal and Switzerland
- A stable number of operators (four): Denmark, Germany, Italy and Sweden
- A declining number of operators: Austria, Greece, Netherlands and UK
- An increasing number of operators: France, Ireland, Norway and Spain
This results in a good balance between large and small markets, and between northern and southern countries.
Figure 2: Year-over-year change in mobile retail revenue, by number of operators in the market, Western Europe, 2005–2013 [Source: Analysys Mason, 2013]
A number of factors have undoubtedly played an important role in driving mobile retail revenue in Western Europe during the last eight years, including for macroeconomic dynamics, regulatory changes, and an increased level of price competition across all markets. However, we have identified the following major trends relating to the number of operators in a particular market and the change in mobile retail revenue.
- Markets with three operators during the whole period have a retail ARPU premium of about 25 per cent. Mobile retail ARPU declined dramatically in all Western European countries between the first quarter of 2005 and the second quarter of 2013, at an annualised compound rate of 3.8 per cent. However, these markets maintained an ARPU premium because of lower voice price competition. In the second quarter of 2013, markets with three operators during the whole period had a weighted average retail ARPU of €18.80 ($25.40) per month, compared with €15 for markets with four operators. Even excluding Switzerland, which had the highest retail ARPU at €31.60 in the second quarter of 2013, the premium was still positive. ARPU in four-operator markets such as Italy and Germany is amongst the lowest, at €12.90 and €15.60, respectively. However, the ARPU premium is mainly voice-driven, because data ARPU is quite similar between markets with three operators during the whole period and markets with four operators (€6.70 and €6.40, respectively). This means that a lower number of mobile operators can brings benefits in terms of voice revenue trend, but the boost to data revenue is less solid.
- Markets with three operators during the whole period have a higher retail voice price per minute, because competition is less aggressive. Price competition has been strong in all Western European markets during the past eight years because markets have reached maturity, and small operators have used price-driven strategies to gain market share and cost scale. However, price dilution has been lower in markets with three operators. In the first quarter of 2005, markets with three operators during the whole period and markets with four operators had similar retail voice prices per minute of €0.24, whereas in the second quarter of 2013, markets with three operators had about a 40 per cent premium at €0.10.
- Revenue trends in some consolidated markets have improved after mobile mergers. The Netherlands and the UK are significant examples of markets where in-market consolidation deals--mergers between T-Mobile and Orange in both countries, in the fourth quarter of 2007 and the second quarter of 2010, respectively--have been followed by a reduction in voice price competition. The retail voice price per minute in those two markets was almost stable in the 10 quarters following mergers, compared with a substantial decline in the ten quarters before the merger.
- Markets with an increased number of operators have performed less well after deals because of harsher price competition. France is the best example of a market in which new entrants significantly increased price pressure. Iliad's Free Mobile reached a 9 per cent subscriber market share in the second quarter of 2013, or five quarters after the launch of commercial services, but market retail ARPU has declined at an annualised compound rate of 12 per cent since then, compared with –4 per cent during 2005–2011.
Pablo focuses on forecasting and analysing telecoms markets in Europe and Latin America for Analysys Mason. He worked for five years in strategy and investor relations at Telecom Italia, where he was responsible for European telecoms benchmarking, followed by three years in investment banking as a senior equity research analyst covering telecoms stocks. Pablo holds a Master's degree in business administration and a postgraduate Master's degree in statistics and economics from Università degli Studi di Roma 'La Sapienza.'