Consolidation may be on Europe's mind, but unity is hard to find

Consolidation is on everyone's mind in Europe at the moment. Indeed, it's hard to escape talk of mergers and acquisitions as a number of European markets grapple with proposals by mobile network operators to join forces with others.

The most prominent proposals on the table are Telefónica Deutschland's plan to buy E-Plus in Germany and create a strong rival to Deutsche Telekom and Vodafone Germany, and Hutchison Whampoa's bid for O2 Ireland. We've also recently seen Hutchison buy Orange Austria, while France is locked in a war of words over how best to deal with Bouygues Telecom following that company's unsuccessful attempt to merge with SFR.

What really stands out in this rush towards consolidation is how little unity there seems to be over how such consolidation should be achieved, and indeed if it should be allowed to happen at all.

Telefónica Deutschland/E-Plus and Hutchison/O2 Ireland have been hailed as benchmarks that, if approved by the European Commission, would spark off an M&A "earthquake", in the words of Orange CEO Stephane Richard.

The Commission has now approved Hutchison's plan to buy O2 Ireland and merge it with 3 Ireland, and is widely expected to approve Telefónica's bid for E-Plus. Indeed, Telefónica has just announced it will sell 20 per cent of capacity on its network after the merger to MVNO Drillisch. The Commission's concerns over the impact these mergers will have on competition appear to have been allayed by concessions by both acquiring operators to cede spectrum to mobile virtual network operators (MVNOs), in order to maintain pricing competition in the markets.

These competition remedies seem to please few, however. Operators grumble that allowing an MVNO to enter as a possible fourth operator undermines the reason why they wanted to merge in the first place: to reduce the bitter pricing competition within national mobile markets. Indeed, ratings agencies Moody's recently warned that price competition would be unlikely to ease in the market because of these remedies.

Meanwhile a report in the Financial Times indicated that national regulatory bodies in Europe are vehemently against a reduction in the number of mobile operators from four to three, and are opposed to the Commission's plan to approve Telefónica's acquisition of E-Plus.

In France, on the other hand, the government is gunning for consolidation and is actively urging operators to come to an agreement over a merger with Bouygues Telecom.

Disagreement over if, how and to what degree consolidation should be achieved certainly reveals a dispiriting lack of unity against the backdrop of the European Union's plan to create a single market for telecoms.--Anne