As the European Commission green-lights Vodafone’s Liberty Global acquisition, could we see a spate of other mergers and acquisitions follow suit?
Last week the European Commission finally gave the go ahead for Vodafone’s €18.4bn acquisition of a string of Liberty Global’s telecoms assets in Eastern Europe.
Vodafone will acquire assets in the Czech Republic, Germany, Hungary and Romania as it expands its European empire. In doing so, it will become the single biggest provider of converged telecommunications services on the continent, stealing the crown of Europe’s current champion of converged services, Deutsche Telekom in the process.
"With the completion of the Liberty Global acquisitions, Vodafone will become Europe’s leading converged operator, with growing fixed and converged services contributing around half of our European service revenues. We have developed a detailed plan to deliver the customer benefits and capture the substantial synergies from the deal, which we will start to execute immediately," Vodafone’s group chief exec, Nick Read, said on an earnings call this week.
The deal will see Vodafone increasing its subscriber levels to 145 million across Europe, offering it the chance to cash in on further ‘cost saving synergies’. But is this deal really as much of a game changer, as Vodafone would have us believe?
Ultimately, Vodafone was still pretty massive before it bought up Liberty Global’s assets. Undoubtedly, the deal will allow Vodafone to extend its reach but is it genuinely a game changer?
" ‘Game-changer’ is perhaps too strong of a term since Vodafone for at least the last ten years has been on a journey from being a pure mobile operator to becoming a convergent telecoms provider. At the same time, the approval of the acquisition puts Vodafone in the lead of convergent telcos in Europe. The overall trend in the telco market is for operators to become convergent providers who can offer fixed, mobile and media services to their customers," said Bengt Nordstorm, CEO of Northstream.
Unsurprisingly, Deutsche Telekom has not taken kindly to being demoted to being Europe’s second biggest converged service provider and has started bleating about the acquisition creating a lack of competition. As part of the deal, Vodafone has agreed to grant Telefonica Deutschland wholesale access to its fibre networks in Germany – a concession that will do little to cheer up Tim Höttges.
"The competition levels in each market will remain strong. The reduction in the number of players in a market doesn’t automatically lead to less competition. In fact, the opposite might happen: incumbent market leader Deutsch Telekom could well increase its spending and the competitiveness of its offerings if Vodafone strengthens its proposition in these markets. Let’s also bear in mind that the European Commission’s approval of the deal comes with conditions – including that Vodafone must offer wholesale access to its network in Germany for Telefonica," said Nordstrom.
The European Commission has long been resistant to the idea of approving too many mergers, focussing on its mantra of four network providers in each of the individual markets it presides over.
So could this latest decision represent a softening of the European Commissions attitude to convergence?
"Not necessarily," said Nordstrom. "The European Commission is still very cautious about enabling consolidation. Every approval so far has come with requirements to open up networks for MVNO services or to support the entry of a new player. This is not likely to change until new Commissioners are appointed this Autumn. Even then, it’s not a given that the new European Commissioners will be more supportive of market consolidation than their predecessors.
"From a market perspective, consolidation is long overdue. Most markets would almost certainly move from four to three mobile operators if regulators were more supportive of consolidation," he added.
So while Europe’s network operators may eye Vodafone’s Liberty Global acquisition with envious eyes, they are unlikely to see a concerted uptick in merger approvals in the near to mid-term.
"Operator revenues have been on a downward trend for more than a decade. At the same time, the ongoing levels of investment by operators in their networks is still very high due to continually increasing consumption of data by users. This isn’t just confined to Europe: the need for consolidation is the same in other markets, including the USA and China. If regulators would be more supportive of consolidation, we’d almost certainly see a lot more of it over the next 12-18 months.