In Europe’s telecoms industry, consolidation seems inevitable

Competition, eh? It’s generally thought to be a good thing. But like many good things, too much of it can leave one wanting less. Take Europe’s big telecoms firms. Their trade association, ETNO, says that one of the key reasons the industry is struggling is "the heavy regulation in the European market to ensure that retail competition is supported". In Portugal’s recent 5G spectrum auction, for example, the regulator insisted on reserving spectrum for a new market entrant. Too much competition makes it harder for mobile network operators (MNOs) to make any money, so they can’t afford to invest in their networks, ETNO claims. But does less competition always lead to more network investment? Answers on a postcard, please (whoops, sorry, showing my age there). That's a big question that hasn't been definitively answered. This study suggests the answer is no. Europe’s MNOs are trying to take matters into their own hands. French telecoms firm Iliad, for example, has just made an offer of $11 billion for Vodafone Italia. Despite one analyst advising the company to "take the money and run," the bid was rejected—but Vodafone’s chief executive is on the record as saying the group is looking at deals in several countries. Will regulators approve these deals? In the UK they might. This week, the regulator Ofcom published a discussion paper that "clarifies" its position on mobile competition. The question of whether a particular merger is likely to result in a substantial lessening of competition, Ofcom said, "depends on the effectiveness of competition that can be expected in the market after the merger, rather than just the number of competitors". The regulator’s stance on a potential merger "would therefore be informed by the specific circumstances of that particular merger, taking into account how markets are evolving". Sounds promising. Three UK, whose attempted £10.25 billion takeover of O2 was blocked in 2016 on competition grounds, was quick to signal its approval. "Moving from four to three mobile players in the UK would mean better, smarter investment in the networks which would, in turn, improve the quality and scale of connectivity in Britain and would unleash more competition," said chief executive Robert Finnegan. But wait a second, what's this? Ofcom also said that "there is no evidence to support the hypothesis that service quality and/or investment increases when markets become more concentrated". Oh. There's plenty of evidence that prices go up though. Perhaps Ofcom will take some convincing after all. And the competition authority will also have its say. So far, all this talk of mergers and acquisitions is just that—talk. Which is cheap, as we all know. That’s why there’s been so much of it in the last 10 years or so. But as long as the perception persists that Europe is lagging on 5G, M&As will continue to be touted as part of the solution. Merger talk also reflects a widespread belief that consolidation in Europe’s mobile market is inevitable. It's a matter of when not if•