Explainer: why the European mobile telecommunications market is ripe for consolidation

A brand sign is displayed at a Vodafone store in London, Britain May 16, 2017. REUTERS/Neil Hall

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STOCKHOLM/MILAN, Feb 24 (Reuters) – Consolidation talk among European mobile operators has intensified, with several executives voicing support as bitter price wars increase debt and limit funds for upgrades of the 5G network.

While Spain’s Telefonica (TEF.MC) has been raising the subject of mergers for years, it has only recently been joined by groups like Vodafone (VOD.L) and Norway’s Telenor (TEL.OL). Read more

The topic is likely to be on the agenda when top telecoms executives meet later this month at Mobile World Congress in Barcelona, ​​with Britain’s Vodafone noting that the need for fast and reliable networks highlighted by the pandemic had helped regulators realize the value of investing. Read more

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The European telecommunications market is highly fragmented, with even small countries hosting up to four mobile operators, many of which are indebted and reluctant to upgrade their networks to 5G without a clear path to recoup the investment.

In contrast, in the United States for example, the three main operators have large customer bases and have been able to bring new services such as 5G to market more quickly.

At the end of 2021, 5G represented only 6% of all subscriptions in Western Europe compared to a fifth in North America, according to the Ericsson Mobility Report.

Analysts say that in smaller countries, fewer operators would make the market more lucrative.


Mergers would reduce the number of operators and regulators worry, which could lead to higher prices, less choice and reduced quality for consumers, especially if two local players join forces in the same market .

ING analysts said companies would need to show that any merger is good for consumers and that cost savings could be used to fund network investment.

The European Commission, which in 2016 blocked CK Hutchison’s $12.6 billion purchase of Britain’s O2 mobile unit from Telefonica, noted in November that it was revising its competition policy guidelines.

“Regulators show no particular will,” said independent TMT adviser Massimo Comito, pointing to the billions of euros the European Union is making available for the digitization and modernization of digital networks. “They remain keen to safeguard competition.”

Telefonica then formed a joint venture with Liberty Global in Britain bringing together O2 and Virgin Media.


From major pan-European players to Sweden’s Telia (TELIA.ST) and Southeastern Europe’s United Group, telecom operators have realized the value of their cell towers to infrastructure investors. Read more

Telefonica sold its tower business for 7.7 billion euros, Vodafone raised billions by floating its infrastructure unit and Deutsche Telekom (DTEGn.DE) plans to sell its radio business soon.

Leaving non-essential assets is another option.


Private investors have been at the forefront of recent European telecommunications deals, with Franco-Israeli billionaire Patrick Drahi taking Altice Europe private and then amassing an 18% stake in BT (BT.L).

Iliad founder Xavier Niel made a €3 billion bid last year to delist the company, which now encompasses Vodafone’s Italian unit.

Providence, KKR (KKR.N) and Cinven bought Spain’s MasMovil for 5 billion euros in 2020 and Apax Partners and Warburg Pincus bought T-Mobile Netherlands from Deutsche Telekom for 5.1 billion euros l last year.

Although private equity firms do not face the same competition issues as established telecom operators, they also do not have the same savings opportunities that another local player might enjoy in the event of a merger, a said Nikos Stathopoulos, a partner. at BC Partners and President of United Group.


Vodafone chief executive Nick Read said the company was pursuing deals with rivals in several European markets, citing Britain, Spain, Italy and Portugal, while Orange (ORAN.PA ) said France would “inevitably” see the number of operators drop from four to three.

Countries like Germany, UK, Spain and Sweden have four mobile operators, but others like Norway and Belgium have three.

Stathopoulos said it was “very natural” for four players to become three.

“The bigger question is whether regulators will be happy to go from three to two in some markets and will they still maintain that competitive tension?”

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Reporting by Supantha Mukherjee in Stockholm and Elvira Pollina in Milan; Editing by Kirsten Donovan

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