Telco sector needs to reinvent itself once again, according to financial analysts

Europe’s telecoms operators are no longer looking at cross-border M&A because the rationale for such deals simply isn’t there, according to financial analysts monitoring the market.

"People have realised that there are very limited synergies," between businesses in different European markets, said Arnaud Burger, managing director, global co-head of TMT finance at Societe Generale, speaking at Total Telecom Congress in London this week.

In Europe, "every country’s different," and the regulatory environment is fragmented, Burger said.

Even though incumbent telcos are not capturing growth in their home markets, there are limited opportunities for them to create value by looking for M&A outside their borders, he explained.

And the investment community is not looking for such deals either, since investors can simply buy a target company directly.

Investors are still interested in the European telecoms market, but there are a number of issues standing their way, said Laurence Hainault, managing director, head of EMEA telecoms at Credit Suisse.

"The super-high level of regulation," is proving to be a headwind, she said.

The technology side of the business also raises questions, with telcos having to find the right balance between investment and return when it comes to spending on infrastructure and other technology requirements for building flexibility into their businesses.

And lastly, some remaining state-ownership of telcos is also a barrier to investment.

But that is not to say it is all doom and gloom. The telco industry "has reinvented itself before," Hainault pointed out.

"The telco sector has to reinvent itself yet again," agreed Burger.

It will be tough to do, but the industry needs to create value, he said.