Facing disconnection: Hard choices for Europe’s telcos
“Two years ago, the fate of the Continent’s telecom companies seemed to depend on their willingness to enter new markets aggressively and acquire expensive assets. Now, survival may depend on a selective retreat.”
The McKinsey Quarterly, 2002 Number 1
For policy makers to take the right decisions in the telecommunications field, they should be aware of the situation in the market. This article highlights some of the challenges currently faced by telecommunications companies.
- The bright future that seemed so assured a year ago has disintegrated into uncertainty;
- Without a truly significant breakthrough that would generate additional revenue it is difficult to see how some integrated incumbents will regain healthy growth rates or even survive;
- The sector must therefore contemplate a fundamental restructuring, leaving Europe with two or three large integrated telecom companies holding majority stakes in data, wireless, and wireline services; although the timing is difficult to predict, these changes are likely to unfold over the next five years;
- The remedy for most companies lies in abandoning efforts to compete in all three main business areas: wireline, wireless, and data services;
- Even though the drivers of restructuring are clear, the speed of the overall industry transformation will depend on three main factors:
- Some European governments still hold either sizable stakes in telecom operators or influential golden shares, and sometimes both. Political considerations could thus override business ones in any transaction.
- The continued fall in the price of telecom shares and the volatility of stocks will make agreement on the value of assets and stocks difficult when mergers and acquisitions are priced. Some companies have been reluctant to sell assets they believe are undervalued by the market.
- There is a tremendous stock overhang on the European market. By some estimates, shares valued at 90 billion to 100 billion euro remain to be issued from public and private offerings that have already been announced. Initial public offerings and other share offerings could be delayed for fear of saturating the market.
- Each incumbent operator enters this new landscape from a different position, and some clearly have more options than others. Debt position and expertise will be the essential factors in deciding whether to pursue an integrated or a focused strategy;
- By recognizing the changes and challenges ahead, the smartest companies can make decisions now, before the pace of change blurs the process. Boldness carries risks, but waiting and seeing could be even riskier.
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- EURACTIVLinksDossier on Telecoms Liberalisation;
- Recent story on telecoms:EMEPs accept Presidency compromise on Telecoms framework(13 December 2001)