European consolidation happening among minor players

Among mobile operators within the saturated markets of Western Europe, consolidation is happening among minor players that are fighting against growing pressures from many quarters. They are facing European Union regulations, falling voice revenues, over-the-top players, economic uncertainty, LTE capital expenditure requirements and spectrum auctions, to name a few. 

While the larger international service providers have the financial power to muscle their way through these barriers, the smaller providers are encountering intense competition from these larger operators and are struggling to survive.

KPN and Telekom Austria fall into this category and have attracted unwanted attention from overseas investors seeking to expand their foothold in Europe, or to overturn the management board and bring fresh dynamism to the company.

Notably, while Hutchison Whampoa's European ambitions remain positive, despite their operations in Italy and the UK, lacking size, its plans have been knocked by failing to succeed with its bid to acquire Ireland's Eircom, another minor player in a small market. It was successful, however, in acquiring Orange Austria, seen as lacking adequate scale by France Telecom.

Rumours indicate that the Spanish operator Yoigo and Poland's Polish Play, both ranked fourth in their markets, are open to discussion from interested parties

But the potential of KPN merging its German E-Plus operation with O2 Germany, currently ranked third and fourth in Germany, is viewed as beneficial by their parents given the potential for cost cuttings and the marketing advantage that comes with larger scale. If such a deal were to go ahead it would make the combined company the largest in Germany.

This is accepting that both KPN and Telefónica are being forced by their shareholders to reshape their ownership portfolios in these dire economic times.

The merger of Orange UK and T-Mobile UK. under the ridiculous banner of Everything Everywhere was seen by both parents as a necessity. Once again, this was driven by a need to gain scale and lower costs, as has been seen by the amalgamation of their networks and some of their retail outlets.

The announcement last week that Vodafone UK and O2 UK plan to upgrade their network sharing agreement is another example of consolidation, and has been labelled by some as "horizontal" by separating aspects of their businesses into a joint venture.

Network sharing is not new, but the level agreed by these two UK operators does break new ground and indicates that neither company is willing to alone shoulder the infrastructure costs associated with LTE and providing widespread in-building mobile broadband coverage.

For some years, many industry observers have openly stated that Europe has far too many operators per country, and consolidation is not a case of "if" but "when."

Perhaps the host of pressures now coming to bear on all the players will force them to accept that action is now necessary, with the smaller operators needing to find fresh investors or merge with their rivals. --Paul