2023, year of consolidation for telecoms in Europe? After a period of glaciation following the vetoes of Brussels, several merger projects are giving hope to operators on the Old Continent. More than ever, European “telcos” are counting on these marriages to gain critical m against platforms like Netflix or YouTube, pool their investments and drive up prices.
Little by little, the lines are moving. In the United Kingdom, Vodafone UK and Three, the British operator of the Hong Kong giant CK Hutchison, have just announced a merger project. With 28 million customers, the new set is now number one in mobile in the UK. But above all, the merger again reduces the telecoms market across the Channel from four to three players. A first… in thirty years.
On the continent, another operation is making the sector feverish: the merger between Orange and MásMóvil in Spain. Announced last year, this 50-50 joint venture project must allow Orange to become a solid number two against the giant Telefónica, the incumbent operator, on the most competitive market in Europe. Brussels, which is examining the operation, must make its decision at the end of August. The European Commission’s response will serve as a test for the entire sector. A green light would restart the consolidation machine. A new veto, on the contrary, would remove any prospect of rapprochement for the years to come.
600 billion euros invested in ten years
The problem is certainly not new, even if it has come back to the forefront with the current debate on “Fair Share”, the idea of a financial contribution from Gafam to telecom networks. For years, operators have denounced the fragmentation of Europe. The Old Continent has around 150 operators for around 450 million inhabitants, compared to three in the United States (for 330 million) and three in China (for 1.4 billion).
The sector is a fixed cost industry. Every ten years, operators spend billions for new frequencies and new mobile antennas (4G, 5G), in addition to fixed investments (fiber optics, etc.). “Over the past decade, European telecoms have invested 600 billion euros”, recalled Christel Heydemann, the CEO of Orange, in February at the Mobile World Congress in Barcelona, the world meeting of the sector.
The problem is that, faced with these colossal investments, operators can hardly increase the prices of packages. On the contrary, in recent years, several very competitive markets, including France, have experienced an intense price war. In these scenarios, each tariff movement of one is immediately replicated by the other. With the perverse effect of a game of communicating vessels, marked by subscribers changing operator at the slightest promotion.
Operators “compressed in their national markets”
Faced with this situation, the operators did not remain inactive. But the merger projects have so far come up against resistance from Brussels. Less competition also means less choice and, in the end, more expensive packages for consumers… Following this reasoning, Margrethe Vestager, the power Commissioner for Competition, had twice blocked the transition from four to three operators: in Denmark in 2015 (Telenor-TeliaSonera merger project) then in 2016 in the United Kingdom (O2-Three project).
Almost ten years later, the growing weight of Gafam, the big winners of the Covid health crisis, has helped to change Brussels’ position somewhat. Faced with these giants, “Europe needs truly pan-European operators and a single telecoms market,” explains Margrethe Vestager’s cabinet. “If telcos have so much trouble creating synergies and investing, it is also because they are squeezed in their national markets”, explained the Commissioner again at the beginning of 2023 to the Italian daily “Milano Finanza”.
No “magic number”
However, Margrethe Vestager is still very cautious about intra-country mergers. “There is no magic number with regard to the number of operators in each country, ures his firm. In the current inflationary environment, access to affordable telecommunications services is even more important for European consumers. »
On the other hand, the Commissioner for the Internal Market, Thierry Breton, a good connoisseur of the subject for having led France Telecom between 2002 and 2005, is more in favor of national mergers in telecoms. In this context, the Orange-MásMóvil operation in Spain will also depend on the political dynamics that will play out between him and Margrethe Vestager.