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06/12/2016

Telecoms merger reforms in doubt

Digital

Telecoms merger reforms in doubt

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Europe's leading mobile telecoms operators renewed their calls for a reform of EU rules which should favour mergers in the fragmented market, but their appeal may fall on deaf ears.  

"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," reads one of the key points of the letter sent to the EU commissioner in charge of the digital agenda, Neelie Kroes, by GSMA, the association which brings together the main telecoms operators worldwide.

The open letter was endorsed by the heads of the top companies in Europe, including Vodafone, Telefónica, Deutsche Telekom and Hutchison Whampoa.

The letter comes as the European Commission is reviewing two major mergers of mobile telecoms companies in Germany and Ireland.

The European Parliament is also set to vote, possibly before the European elections in May, the telecoms reform, proposed by commissioner Kroes last September.

Operators raise five points in their letter (including radio spectrum allocation, rules' simplification and data protection), but the key demand concerns the overhaul of mergers rules.

Big operators have long been asking the European Commission to relax antitrust obligations to favour mergers in a continent where around 100 companies offer mobile telecoms services.

The new call repeats the message that only with "consolidation", operators will be able to invest in new networks and technologies to keep Europe competitive against Asian and US rivals. In other words, they ask for less competition and offer in exchange of a vague commitment to invest more.

The signatories of the letter did not fail to remind the Commission that "despite having the world’s highest unique subscriber penetration rate at 80%, Europe is the only region to see revenues decline, from €162 billion in 2010 to €142 billion in 2013," according to GSMA figures.

Revenues are certainly decreasing but after companies made huge profits in the previous years, also thanks to a favourable regulatory environment, runs the opposite argument.

What is more, even in the boom years, big operators remained reluctant to maintain the investment pace recommended in Brussels.

The wrong mailbox

The telecoms lobbying is legitimate but "is addressed to the wrong commissioner," commented a telecoms industry expert who preferred not to be named.

Competition Commissioner Joaquin Almunia would be the obvious recipient of the letter, as he holds the keys to the EU competition sector.

While Kroes has shown her backing for the idea of easier consolidations, Almunia has so far been much more cautious. This situation seems not to have been changed by the new attempt from the industry.

"We agree on the need to complete the telecoms single market. There is widespread agreement on the damage caused by Europe's fragmented markets," Kroes' spokesperson, Ryan Heath, said in a statement.

"The first step in solving these problems is finalising the Connected Continent regulation. Further steps will need to follow swiftly after that," he concluded, without adding details on which "steps" should be taken.

Kroes is at the end of her mandate and is desperately looking for allies to have her major reform of the telecoms sector passed at least by the Parliament. The big operators have not been very enthusiastic about her legislative proposal, and many do not dislike the idea that it may be shelved.

The Parliament has only the last plenary session of April to vote on it. Were it be postponed until the next legislature, the telecoms reform may well end up being trashed.

The antitrust commissioner has a clear power to address the operators' demands, and could give an important signal in the short term by not raising objections to the merger of the German division of O2 (owned by Spain's Telefónica) and the German operator E-Plus (owned by the Dutch company KPN), and to the acquisition of the Irish division of O2 by Three (owned by Hong Kong's Hutchison Whampoa).

However, Almunia's concerns seem to remain unchanged. Speaking about the two mergers, he said in a statement released after the new GSMA's appeal: "The companies involved may have global operations, but the likely impact of the transactions will be assessed on national markets reflecting the cross-border barriers that actually exist across the EU."

In other words, these operations will not address the key issue of making the European telecoms market an actual single market, in Almunia's view.

"The industry says it needs to consolidate to invest in the next-generation networks. However, allowing fewer, larger players in individual EU countries would just reinforce market power at that level," he added in an even clearer quote about his ideas.

However, decisions are not made yet and will come "in the coming months", Almunia concluded. Will operators manage to change his mind? 

Background

Europe has about 100 mobile operators, set against six in the United States and three in China, making for a much more fragmented market.

Despite a record number of users, the EU mobile telephone industry has seen its revenues decline in the past years. Over the economic crisis, European companies have been struggling to pay off debts and build 4G and fibre broadband.

The European Commission proposed last September a wide reform of the telecoms sector intended to kick-start the underperforming European telecoms sector and incentivise investment in ultra-fast broadband networks.

Brussels proposed the creation of a real single market for telecoms in Europe, since the sector still operates largely on the basis of 28 national markets.

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