2014 – The break-point year for consolidation

2014 was another year when the European telecom market with more than 100 operators desperately searched for scale. The European mobile paradox with an explosion in traffic and drop in revenue forces the operators to find new ways for acceptable margins and growth. A number of them actually succeeded and successfully scaled up their business. 2014 was a year when the regulators by allowing a number of exciting four-to-three mergers boosted a consolidation spirit into the European market. It was also the year when the ambition to lower churn and customer acquisition costs by offering multi-play services generated a number of M&A between mobile and cable/fixed operators.

The trend is clear. One by one are the one-market, one-service operators disappearing and mobile/fixed/cable companies emerging with the blessing from both national telecommunication- and competition regulators as well as the European Commission. The need of 4G investments and fiber deployments in Europe for not lagging behind the development of digital communication has this year been valued higher than the previous four-operator price war scenario in each market. The entrance of global telecom operators such as America Movil’s majority stake in Telekom Austria also pinpoints the questions and need of raising global companies within the EU market. Either we allow EU companies to grow strong and build up a global presence with EU as a base, or we accept the case with non-EU giants to acquire declining smaller firms.

We have this year seen a number of M&A where the number of in-market mobile operators will cut from four to three. In Ireland, 3 formally completed the acquisition of O2, and in Germany Telefonica received final clearance for its acquisition of E-Plus. Based on this, the precedence is set and it will now be very difficult for the Commission or national authorities to block this kind of constellation within EU. Inspired by the approvals, Telenor and TeliaSonera have now agreed to merge their Danish businesses. It seems clear that consolidation is the outlined strategy for mobile operators to overcome the challenging market conditions.

2014 was also a year with big scale M&A between mobile and fixed. All rumors were scattered when the former UK telecom monopoly BT announced that it has formally moved to acquire EE, UK’s biggest mobile operator. In Spain, Vodafone acquired the second largest cable company ONO and in France the domestic cable company Numericable acquired the mobile operator SFR. It all highlights the general adopted strategy to offer seamless multi-play services.

So while trans-European consolidations are likely still in the coming, the silently agreed roadmap by the commission and operators seems to be; merge mobile and fixed, and consolidate in-market operators. We will therefore see more markets becoming three-player markets as a reaction to challenging market conditions and we will see further in-market convergence between fixed and mobile. 2014 set the direction, and 2015 will very likely increase the pace.

/Karl

Karl is a Consultant at Northstream

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