Blog: Will Dutch consolidation open the floodgates? - Mobile World Live

Blog: Will Dutch consolidation open the floodgates?

29 NOV 2018

It took almost a year but Deutsche Telekom’s acquisition of a majority stake in Tele2 Netherlands got through the European Commission (EC) unscathed.

With the EC taking the unusual step of waving through the reduction from four operators to three, does this mark a watershed moment for European M&A?

In recent years the EC has taken a dim view of reducing the number of competitors in each market.

After turning CK Hutchison’s deal for O2 UK down flat in 2016, it then allowed the former to combine its operation in Italy with Vimplecom’s to create Wind Tre: however, this came with the caveat it must support the launch of a fourth operator.

That newcomer, Iliad, has since shaken-up the Italian market and sparked what looks like the beginnings of a fierce price war, with rates slashed by every player in a bid to compete with aggressive deals from the new entrant.

It’s hard to argue Iliad’s entry into Italy hasn’t created stiffer competition and lowered prices (exactly what the EC intended). However, for the country’s three longer-standing players, the market looks increasingly hazardous with WindTre, Telecom Italia and Vodafone Italy all reporting declines in earnings in their most recent results.

Iliad’s other market, France, is arguably the most likely candidate in the EU for consolidation. Not only has it been attempted before, but operators and recently even the regulator are frequently either talking-up the need for M&A or fielding questions on it from journalists.

As appealing as consolidation may be for some, the EC made clear in its statement on Tele2/T-Mobile Netherlands the Dutch market was a special case. It concluded the combined company would still only hold a share of 25 per cent of the total market, with the two dominant players KPN and VodafoneZiggo pursuing different strategies.

The EC also noted it was unclear if Tele2 Netherlands’ business was currently an “important competitive force” in the market.

Analyst view
Stephane Teral, IHS Markit executive director for research and analysis, mobile infrastructure and carrier economics (pictured, right), told Mobile World Live the approval “sends the signal that the EC is acknowledging that having four operators in each market is becoming unsustainable as revenues are stagnant and investment remains capped”.

He added France and Italy were the “top priorities” for consolidation (or further consolidation in Italy’s case).

Kester Mann, principal analyst, operators at CCS Insight (pictured, left), warned although the Dutch deal could be seen as a positive, it would probably not lead to a raft of new agreements.

“The approval, particularly given that no formal remedies were required, will be welcomed by the struggling European telecoms sector which has long argued for a more favourable regulatory environment,” he said. “However, in no way should it be interpreted as an about-turn that will suddenly trigger a wave of in-market consolidation in other markets in the region.”

He added: “Despite the deal in the Netherlands, same sector consolidation will be difficult to achieve in other leading European markets, a number of which have already undergone this process (Germany, Italy) or been thwarted in attempts to do so (UK).”

In France, Mann said an operator consolidation attempt “appears inevitable” given the high level of market competition. Though, he noted, this would require two operators to “compromise sufficiently” and to then do enough to persuade regulators.

One of the key issues in cases such the recent T-Mobile acquisition of Tele2 is the impact of having fewer operators, perceived by some as improving effective competition and by others as reducing it.

A recent GSMA Intelligence (GSMAi) study into the aftermath of CK Hutchison’s purchase of Orange’s Austria operation in 2012, found the reduction in the number of operators from four to three actually increased competition and accelerated the new entity’s 4G rollout.

In the conclusion to its report, GSMAi stated: “A four-to-three mobile merger intensified competition in quality-related aspects, and that a three-player market delivered more widely available and faster 4G services than those experienced in four-player markets.”

“It also shows that a merger between the two smallest operators in Austria allowed them to significantly outperform other operators in Europe with a similar position in the market,” it added.

French connections?
Of course each European market differs enormously, with some having incumbent fixed providers with a huge market share while the others feed from scraps, and others with three or four fairly evenly matched players.

The EC will judge each case on its merits, but with one deal unconditionally cleared it may alert those in a similar position that the door could be ajar.

It remains to be seen how well received merger attempts will be in other markets, but with speculation ramping in France and regulators in the country reportedly easing their stance, it may not be too long until we find out.

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.



Chris Donkin

Chris joined the Mobile World Live team in November 2016 having previously worked at a number of UK media outlets including Trinity Mirror, The Press Association and UK telecoms publication Mobile News. After spending 10 years in journalism, he moved...

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