Telecom mergers remain a long distance call in Europe

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BRUSSELS (Reuters) – Telecom companies and investors hoping that unconditional EU approval of Deutsche Telekom’s Dutch deal could signal a looser regulatory stance on mergers in the industry would do well to ‘be careful.

FILE PHOTO: A Deutsche Telekom logo at the Mobile World Congress in Barcelona, ​​Spain, February 26, 2018. REUTERS / Yves Herman / File Photo

Shares of the European telecommunications sector index gained more than 3% on Monday after Reuters announced that the European Commission would clear Deutsche Telekom’s deal without requiring any concessions unlike some major cases in recent years.

Deutsche Telekom shares gained as much as 2% on Monday while Tele2, which sells its Dutch business, jumped 9% to a four-month high.

The telecommunications industry has urged the European Commission to consider the big picture when examining mergers that aim to increase revenue and investment in the sector.

The approval of the Dutch deal is a positive sign, but it has characteristics specific to the Dutch market that make it difficult to interpret it as a major regulatory change on the part of the EU.

The Commission formally approved the deal on Tuesday, in a confirmation of the Reuters article, saying the merger is unlikely to lead to a significant price hike and increase the likelihood of mobile network operators coordinating. in anti-competitive practices.

The telecommunications industry has been in a regulatory stalemate since European antitrust chief Margrethe Vestager blocked an offer from Telia Company and Telenor to merge their Danish operations in 2015 and, a year later, halted the deal. CK Hutchison Holdings in Great Britain.

The rationale was that four or three reconciliations would result in higher bills for consumers, hamper the development of network infrastructure, and hamper innovation. To compensate for this, the merging companies were forced to bolster a smaller or new competitor.

Operators said it was a short-sighted sight of an industry desperate for money to roll out 5G and be able to compete more effectively with internet rivals.

A more flexible approach from EU competition authorities would certainly be good news for the industry, said Ameet Patel of Northern Trust Capital Markets.

“If – and for now it is still an if – there is a change in the EU’s position on telecommunications consolidation, it couldn’t have come at a better time, ahead of spending and the deployment of 5G spectrum, ”he said.

“Allowing consolidation is an obvious way to get telecom operators to invest enough to keep up with the world’s evolution towards 5G,” Patel said.

“The target market that immediately comes to mind is France. Others could include the UK, Switzerland and Spain. Vodafone could be the generic beneficiary given its wide exposure.

Europe could see a wave of mergers and takeovers after the deal with Deutsche Telekom, Barclays wrote in a customer note.

“This could lead some smaller players in a number of markets where there are four mobile network operators to reconsider consolidation (UK, Spain, Italy). France is also a market where consolidation could take place, ”the bank said.

REASONS TO BE CAREFUL

But HSBC said there was reason to be suspicious as the Dutch characteristics of the case might not apply elsewhere.

“We believe that if the Dutch deal were approved it would be for reasons very specific to the circumstances. We would therefore be cautious before cross-reading that a broader sector consolidation is immediately back on the table, ”the bank wrote in a client note.

Societe Generale also urged caution, highlighting arguments made by Tele2 regarding its Dutch activities which may not be valid for other cases.

“The threat to disconnect the company could have softened the EU’s opposition to a deal since the number of operators would inevitably have fallen to three,” the French bank said in a research note to customers.

“While this decision is unequivocally linked to the unsustainability of Tele2’s Dutch operations, we doubt that it could have a lasting impact on the fundamentals of the sector.

Reporting by Foo Yun Chee, additional reporting by Julien Ponthus in London and Danilo Masoni in Milan. Editing by Jane Merriman and Alex Smith


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