March 6, 2014 7:01 pm

Telecoms chiefs urge EU to reform competition rules

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Chief executives of Europe’s major telecoms groups have written to the European Commission to ask for an easing of competition rules in order to allow consolidation and boost profits for the industry.

The letter to Neelie Kroes, Europe’s digital commissioner, has been signed by 10 companies including Orange, Deutsche Telekom, Telecom Italia, Telefónica, Vodafone and Hutchison Whampoa.

It says that regulatory changes are needed given “decreasing revenues and reduced market values compared with operators in the US and Asia”, and to “restore [Europe’s] global competitiveness”.

The plea follows evidence that the past 12 months were gruelling for some of the largest groups in the industry. Deutsche Telekom on Thursday damped expectations of increased dividend payments in the short term after admitting that it would not reach its free cash flow target for 2015.

Orange, meanwhile, on Thursday also cut its dividend for 2014 after revenue fell 6.4 per cent to €10.2bn in the last quarter, but won over investors with the promise that earnings would stabilise this year.

Indeed, executives in the industry privately say that 2014 will be a crucial year for the industry, in particular given a number of mergers that will test the rules that have so far restricted consolidation within national markets.

The European competition watchdog has still to decide whether to allow the merger of the third and fourth-largest telecoms companies in Germany, while Vivendi said on Wednesday that it received bids for SFR, France’s second-largest mobile operator, from Bouygues and Altice.

There is little doubt among analysts that such deals would increase mobile prices for consumers, but industry executives argue that this is needed to help pay for national infrastructure.

In the letter, the companies argue that consolidation is needed for investment, saying that “the evolution of Europe’s antitrust framework to support market driven restructuring and consolidation will be necessary for redefining the investment climate and driving Europe’s competitiveness”.

Europe is lagging behind other regions in the deployment of mobile broadband, according to Anne Bouverot, director-general of the GSMA, the industry trade body. She said that Europe was the only region to see revenues decline – from €162bn in 2010 to €142bn in 2013 – despite having the world’s highest level of subscribers.

“There is the need for regulatory reform. China is really stepping up and Europe will be left further behind,” she added, pointing to accelerated growth in the Chinese telecoms market for 4G services.

Promises of regulatory reform have been made by Brussels. In the letter to Ms Kroes, the telecoms executives welcomed her work to create a single European telecoms market.

However, the letter also requests a level regulatory playing field with internet companies, which can be more lightly regulated and taxed than the telecoms sector, including the ability for telecoms groups to offer “customised services” for internet access.

The letter also calls for reform to the management of Europe’s spectrum, which is needed to broadcast mobile services, as well as clearer rules on privacy and security.

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