Next month could see a real watershed moment in the European telecoms industry: if the European Commission decides to approve the plan by Telefónica Deutschland to buy E-Plus from KPN, the number of operators in Germany would fall from four to three and other M&A plans could be set in motion by companies encouraged by a positive ruling from European Union anti-trust officials.
Consolidation remains on the agenda of telecoms operators still reeling from a perfect storm of regulatory change, economic hardship and fierce competition. This is particularly the case where there are four or more network operators within a national market: four might be good for consumers as it brings prices down, but for operators it means too many mouths to feed.
That has certainly been the message from France, where efforts to reduce the number of operators to three floundered after Bouygues failed to achieve its objective of merging Bouygues Telecom with SFR. Operators in France have been complaining about cutthroat competition since the arrival of fourth operator Free Mobile. Now that SFR looks set to merge with cable operator Numericable rather than Bouygues Telecom, the market will still consist of four mobile operators. Nonetheless, the French government has clearly stated that it is also striving for greater consolidation of the telecoms market and wants to see the number of operators reduced to three once again.
That may be the attitude among French politicians as well as operators in general, which was highlighted in a report from the GSMA is week that said unsustainable financial trends are driving consolidation, yet consolidation is hampered by the complex regulatory regime in Europe. The GSMA continues to urge EU regulators to support market-driven restructuring and consolidation in order to encourage investment and drive Europe's competitiveness.
But EU anti-trust officials worry about the impact of further consolidation on consumer prices. This has created a major sticking point that operators may find hard to circumvent.
Somewhat bizarrely, reports have suggested that mergers will only be achievable if a fourth operator is re-created, which undermines the whole point of a merger in operators' eyes. This has apparently been the case in Ireland--where Hutchison Whampoa's 3 Ireland is trying to buy and merge with Telefónica's O2 Ireland--and now also in Germany.
The Financial Times claims to have seen a 29-page concession package submitted by Telefónica to the European Commission in an effort to secure clearance for the E-Plus purchase. In this document, it appears that Telefónica has stopped short of providing enough spectrum or customers that would allow a new fourth operator to emerge, instead offering access to its Wi-Fi network and some less attractive higher-frequency spectrum at a later date.
It's hardly a surprise that Telefónica would balk at providing a full-blown launch pad for a fourth operator: a key reason for merging with E-Plus is to benefit from a larger operational base and a smaller number of competitors.
Recent events in Austria will also shape EU opinion on latest merger plans: the number of operators there was reduced from four to three after Hutchison bought Orange Austria. The EU had hoped a fourth operator might emerge using spectrum released by Hutchison, but that has so far not taken place.
Telekom Austria CEO Hannes Ametsreiter told the FT that "nobody is stupid enough to step into an already ruined market", and asked why other companies would want to come if Orange Austria had already been brought close to bankruptcy.
Meanwhile some of the more competitive prices, such as a €7.50 tariff for 1 GB of data from 3 Austria, have since disappeared. An end to the price war was welcomed by operators, but rued by regulators.
Four may be a crowd for operators, but consumer prices look set to remain a sticking point.--Anne