O2 Germany chief hints at market consolidation

The German market is not big enough to support four mobile operators, claims Rene Schuster, head of Telefonica O2's Germany division. The exec believes that consolidation will take place within the next three to five years, although O2 Germany will be of sufficient size to dictate its own strategy.

"The market isn't large enough in the longer run," Schuster said at a recent conference, adding, as reported by Bloomberg, that a reduction in the number of operators in several European markets was overdue, and European Union regulators will need to be open to these moves in the years ahead.

This viewpoint was supported by Boris Boehm, from the German investment firm Aramea Asset Management. "Consolidation will take place, but not only through M&A but also by weakening members of the market itself," he told Bloomberg. "There will be some room, especially for Telefonica, to take part in this process."

However, competitive pressure on O2 Germany might force the company to find a partner. Robin Bienenstock, an analyst at Sanford C Bernstein, told Bloomberg that a continuing slide in profit margins at O2 Germany and KPN's E-Plus could trigger a joint venture, with a combined network producing cost savings of around €4.2 billion.

"The most obvious merger of assets in the German market are Telefonica's assets and KPN's assets from an operational and industrial point of view as they're subscale," said Bienenstock.

A merger between the two operators would see them controlling a third of the German market with approximately 37 million customers. 2010 revenues put E-Plus in third place with €3.1 billion, and O2 Germany in fourth place with €2.9 billion. These compare with Deutsche Telekom's €7.3 billion and Vodafone's €6.6 billion.

For more:
- see this Bloomberg article

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