Nokia and Vodafone: Bad deals for Europe?

What a week that was.

It was a week that finally provided answers to ongoing questions about the future of Vodafone's 45 per cent stake in Verizon Wireless and Nokia's devices unit: as you will all know unless you have been holidaying in an Internet-free zone, Vodafone agreed to sell its stake to Verizon for $130 billion (€98.7 billion), and Nokia is selling its devices unit to Microsoft for ($7.2 billion) €5.47 billion.

Since then, the two deals have been picked over and analysed in detail, with analysts and journalists drawing varying conclusion. Vodafone's deal has come in for both praise and criticism, but it essentially represents the conclusion of what the UK group always regarded as a long-term investment. CEO Vittorio Colao now plans to use around $9.3 billion of the proceeds to improve the operator's network infrastructure across Europe, putting further pressure on competitors.

Nokia is a different matter entirely. A quick look at Finnish newspaper headlines this week indicated what an emotional day it was for Finns to lose the devices-making business of former market leader Nokia to a U.S. company. Conspiracy theories abound, such as the one that former Nokia CEO Stephen Elop, and now the executive vice president of Nokia's devices and services unit, was little more than a "Trojan horse" brought in from Microsoft to Nokia to provide a solid platform for the still-not-very-popular Windows Phone OS and then deliver the whole thing to Microsoft.

Comments this week Telecom Italia CEO Franco Bernabe, who is also the current chairman of the GSMA, also indicate there is a certain amount of alarm over what these deals mean for the future development of the European mobile industry.

During his keynote at a GSMA event in Brussels on Thursday to promote awareness of mobile-based solutions for the health industry and other "adjacent" sectors such as transport and utilities, Bernabe said the two megadeals deals are not what Europe needs: "What happened to Nokia does not go in the direction of helping Europe to become a champion," he added.

Anne Bouverot, director general of the GSMA, backed up his comments, noting that it was hard to understand how it came to pass that there is no longer a European-owned mobile device manufacturer. Meanwhile in her keynote following Bernabe, European Union's digital commissioner, Neelie Kroes, would not be drawn on how she felt about the deals, but said she admired the Nokia board for having the courage to make such a tough decision.

The GSMA has also just released a new report that highlights both the contribution that the mobile sector makes to GDP in the EU (2.1 per cent in 2012) and the fact that despite having the world's highest unique subscriber penetration rate at 79 per cent, Europe is the only region to see revenues decline--from €162 billion in 2010 to €151 billion in 2012--and is now falling behind in the deployment of next-generation mobile technologies.

"The mobile industry can play a key role in the European recovery, but this will require policy that encourages investment in mobile broadband connectivity, enables innovation and helps build consumer confidence in mobile services," Bouverot said in a statement on the report. "This should be at the heart of the Commission's planned proposals on a single telecoms market."

Indeed, like the rest of us, the GSMA is awaiting with considerable interest the final proposals for the single market that Kroes is due to deliver to the European Commission on Sept. 10. The GSMA is already alarmed by the proposal to scrap roaming charges. Bouverot said the association is concerned that the proposals are too backward looking, and said the focus should be on how to provide investment incentives rather than on controlling retail voice prices.

Comments such as these only serve to highlight the underlying tensions between the mobile industry and the EC. This was further illustrated by comments by Kroes at the Brussels event, who said Europe should "forget 4G" as it had missed the opportunity to be ahead in that market and instead focus on taking the lead in 5G network technology, which might not be commercially viable for at least another seven years.

Bouverot for one seemed fairly horrified by such comments: "We should be thinking about the future but we should not give up on 4G  [LTE]," she said. "5G will not come for another 10 years."

To be sure, next week is set to be another momentous week in Europe's telecoms industry, particularly for mobile players; we finally should see some answers to questions about what the final proposals for a single market for telecoms will actually include.

"I am in a good mood ahead of the proposals next week," said Kroes during her keynote--a comment that no doubt strikes fear into the heart of mobile operators across the continent.--Anne

P.S. While pricing can never be low enough from a consumer perspective, the ongoing quest for operators as they roll out LTE networks across Europe is to find a balance between competiveness and the ability to fund future investments. Check out this special report on LTE pricing in Europe.

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