© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
January 8, 2013 8:01 pm
Telecoms gives the lie to Europe’s single market. It remains highly fragmented – with more than 1,200 fixed telecoms operators and almost 100 mobile networks – and carved into national markets. Cross-border services are non-existent and prices can vary 10-fold from country to country.
It was against this backdrop that Europe’s telecoms bosses met Joaquín Almunia, EU competition chief, late last year, hoping to persuade him that national consolidation was unavoidable. Without it the industry – reeling from a steep fall in revenues and shedding dividends – could not afford network investments.
Mr Almunia was unconvinced. He urged the executives to lift their sights if they wanted to consolidate by bringing down national barriers to create a more unified market. Cross-border consolidation would have fewer antitrust impediments. The executives think the network-sharing idea has promise and are working out options. but no one is claiming it will be easy, or necessarily the right way ahead. Breaking down national barriers, jealously guarded by domestic regulators, is a mammoth task, even if the industry were to agree.
The fragmentation hides a more complex picture. Around 80 per cent of EU mobile customers have subscriptions with the four largest groups. The trouble is these work through national offshoots that generally operate independently. Retail offers remain constrained by borders.
Rather than forge pan-European networks, operators have until now tried to build scale through in-country mergers. But, given some markets are down to three or four main players, the operators’ ambitions have hit a regulatory roadblock in Brussels. This was underlined by the difficulties met in merging two of the smallest operators in Austria late last year.
“What we cannot do ... is to give some companies a blank cheque to consolidate within their national borders and increase prices for consumers on the basis of mere promises of further investment,” Mr Almunia said in December.
Efficiency gains could as easily be found, he said, via “network sharing agreements”. Executives are examining whether cross-border arrangements are feasible given the complexities at a financial, technical and regulatory level.
Even so, executives say the start of talks is significant. These industry divisions hampered the sector in agreeing terms with groups such as Google and Skype that use their networks, one executive said.
“Almunia is interested in how national markets can be changed to a more European one,” says one person familiar with the talks. “There are too many national markets. Everyone has gone away to think about how you could create this – it would not be easy but there are different ways and different degrees.”
The discussion also reflects the woes of European telecoms groups. One analyst with knowledge of the talks said there was little surprise that such drastic initiatives were being considered, given the parlous state of their finances.
Luigi Gambardella, chairman of Etno, representing the big telecoms groups in Europe, says: “It is widely recognised by many that Europe and European industry are losing ground in the telecom sector. Sector consolidation could help both to achieve a single market and to help market players achieve scale and be more competitive.”
Given the hurdles, one person familiar with the talks said more modest steps could be made towards merged networks. Moves are already under way to bring together infrastructure within countries. In the UK two basic networks are now being shared by the four operators since the merger of the basic infrastructure owned by O2 and Vodafone last year.
One idea that has arisen has been to create a “newco” structure that would own the physical infrastructure assets of the large groups. This could be separately financed, according to one person familiar with the proposal, which could allow easier access to European funds to subsidise the rollout of fibre networks. Such arguments could help persuade EU member states, who would be loath to allow sway to a single European regulator.
But grand schemes face near-insurmountable political hurdles. Much more likely is some degree of network sharing without full regulatory overhaul. This could be more acceptable to domestic regulators already subject to EU rules.
Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.