“If anyone thinks this is an easy business,” said Mike Fries, CEO of Liberty Global, “get back to reality. We are grinding in this industry. We are grinding. I will tell you that, and you all know that.”
Speaking during an interview at the Morgan Stanley European Technology, Media & Telecom Conference on Wednesday, Fries observed that there are just too many operators in the European telecom market.
“In China, there are 450 million subscribers per operator. In America, it’s 110 [million]. In Europe, it’s five million,” he said. “So we have a lot of work to do on regulatory pressure, in my opinion, to get this market, further consolidated, further rationalized.”
Fries is certainly not the first telecom CEO to call for regulators to pave the way towards further consolidation in Europe, and he won’t be the last.
As things stand, the market is awaiting the outcome of the European Commission’s in-depth investigation into the proposed merger between Orange and Masmovil in Spain; its decision here will be seen as a key indicator of its current attitude towards M&A.
Vodafone has also announced plans to divest its Spanish operations because of the challenging conditions on the market, and indicated it is continuing to explore a range of options for its Italian business. In addition, the operator is hoping to merge Vodafone UK with CK Hutchison’s Three UK; this deal is now being scrutinized by Britain’s Competition and Markets Authority (CMA).
Liberty Global has a close partnership with Vodafone, in part owing to their joint venture in the Netherlands (VodafoneZiggo) as well as shared ownership of U.K. mobile tower joint venture Cornerstone Telecommunications Infrastructure. Fries also pointed to a fiber wholesale network deal agreed last year between Virgin Media Ireland and Vodafone Ireland.
Furthermore, Liberty Global acquired close to a 5% stake in Vodafone Group earlier in 2023. Commenting on this transaction, Fries said that while his company is “not an activist” investor in Vodafone, “we intend to be active.”
He also observed that he is now dealing with his third CEO at Vodafone, after Margherita Della Valle replaced Nick Read earlier this year. Read in turn was the successor to Vittorio Colao.
“We have a strong relationship with Vodafone,” Fries said. “And we think the new management team has generally the right approach to things.”
He indicated that Liberty Global has no plans currently to make other, similar investments in the region, although he remarked that there has been quite a lot of telco investment activity here recently.
“It’s entertaining to say the least,” he said, pointing to investments in BT shares by both Altice UK and Deutsche Telekom, as well as e&’s (formerly Etisalat) purchase of a stake in Vodafone; and French billionaire Xavier Niel’s acquisition this week of a 6% stake in Belgium’s Proximus.
“So what does all this mean? … I think what it means is smart money is looking at assets that are undervalued, that’s what it means to me. And we never say never. But it’s not something that’s on our radar right now,” Fries said.
Meanwhile, Fries was generally bullish about the performance of Liberty Global operating companies in Europe this year and said the group is going to hit 19 of the 20 guidance metrics that it provides.
“The only one we’re going to miss is our UK revenue target,” he said. “And if you factored out of that our handset revenue guidance, which is always volatile, we would hit that too. So that’s a pretty good outcome. And if you look at the most important metric for you all, which is our distributable cash flow [of] €1.6 billion, we’re going to hit that as well.”
Liberty Global has also flagged that it will be providing a more extensive strategy update with its results presentation for the fourth quarter of 2023.
“We have spent quite a bit of time simplifying our business, we think we’re at an inflection point where we want to be able to really give you three really important pieces of information,” Fries said, summarizing these as how Liberty Global values its operating companies; how it intends to crystallize that value; and what it plans to do with the cash that it generates.
“It’s not a capital markets day, we’re not going to bore you for three or four hours. We’re going to be sharp and short … We are motivated and nothing’s off the table,” he said.