The recent wave of in-market consolidation in European telecoms looks set to continue as operators seek to become converged players and to ease the pressure of competition, but there are indications that the new European Commission could look to make merger-happy telcos’ lives more difficult.
In general, "we see regulatory headwinds on the decline for telcos…[but] M&A receptiveness is one of the big question marks," said Mark Habib, director, corporate ratings at Standard and Poor’s at the firm’s EMEA telecoms seminar on Wednesday.
Margrethe Vestager became the EU’s competition commissioner in November, and this year there have been hints that she will take a harder line on consolidation than her predecessor Joaquín Almunia.
"There is renewed uncertainty at this stage about the [position] of the new competition authority," said Xavier Buffon, director, corporate ratings at S&P.
This could stem from lessons learned from M&A deals approved by Almunia in recent years. Remedies imposed on the takeover of Orange Austria by Hutchison’s 3 almost three years ago – including the sale of spectrum and assets – have had little impact on the consumer market, Buffon noted, while the arrival of a new MVNO in Germany after Telefonica’s E-Plus buyout has not brought significant price change.
As a result, it could be that the commissioners are "rethinking their stance about in-market consolidation," Buffon warned.
Indeed, on Tuesday it emerged that TeliaSonera and Telenor have suggested new remedies in order to gain European Commission approval for their merger in Denmark; having previously offered to sell some spectrum and offer capacity to a newcomer, the pair have now offered to sell a 40% stake in their infrastructure business and offload prepaid unit BiBob.
"It seems to [have] become a bit more difficult," said Buffon. "The new competition commissioner is being more demanding."
In addition to Denmark, there are also M&A deals awaiting competition authority approval in the U.K., Italy and Belgium. As such, the industry is in a similar place to where it was in early 2014, when M&A deals hung in the balance in Ireland and Germany – Hutchison’s acquisition of O2 Ireland and the E-Plus deal respectively.
Both of those deals were approved, with remedies, after which "we saw a huge number follow suit," Habib noted. Therefore, what happens in Denmark and elsewhere will provide greater visibility on the future of European telecoms M&A, he said: "It feels like back to the future there."
Despite the uncertainty, S&P remains confident that there is more M&A on the horizon in Europe, particularly as operators look to become converged fixed and mobile players.
"These operators have a key advantage," Buffon said, given the growing trend towards quad-play and bundled services. Convergent players find it easier to maintai n ARPUs and lower churn, as well as deriving benefits at the technical level, such as the ability to offload mobile traffic onto their own fixed networks.
Buffon stopped short of saying that operators with only a fixed or a mobile network will not survive, but "they will have a tough time" as quad-play takes hold, he said. "These operators will face higher price-driven competition."
The going will also be tough for mobile operators that are still competing in four-player markets. Companies like France’s Bouygues Telecom may yet sell out, while Yoigo has been looking for a buyer in Spain for some time.
"[There] is really a margin issue for the lagging player," in a four-operator market, Buffon said.
Thus, whatever stance the European Commission takes over the next few months, we can still expect to see more consolidation in the telecoms and cable markets.
"Both sectors…will remain very active in M&A," Habib predicted.
