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Summary

European telecom operators have increased their focus on offering multiplay services through M&As. This is helping operators retain their market shares in both fixed and mobile segments. Ovum believes that competition in European countries will continue to increase, with operators having the capability to offer fixed–mobile bundled services using their own network infrastructure. Each merger has its own story, but fixed–mobile convergence (FMC) is the main driver. The FMC move is further motivated by the emergence of 5G, the Internet of Things (IoT), and newer over-the-top (OTT) services. Ovum's M&As in Europe Tracker: 2016–18 highlights that out of 81 deals in the last two years, around 40% were centered on FMC activities.

Consolidation continues, as fixed and wireless become further integrated

European telcos have faced both increased competition and attentive regulators in recent years. Revenue growth has stalled, but the need to invest in networks has not. Operators have not only looked to cost-cutting whenever possible, but have also tried to increase scale in existing markets and have entered into adjacent markets (e.g., fixed to mobile, integrated to IoT, etc.) They've also tried to simplify their networks, in most cases through technology solutions, but also by spinning off network assets to infrastructure providers (e.g., cell tower specialists Cellnex Telecom, Telxius, etc.) The result has been a surge in overall M&A activity over the last few quarters.

During the past two years, M&As across Europe have been mainly to provide FMC services and to sustain competition in the case of smaller mobile or fixed operators. The largest M&As includes the combination of the Italian assets of Hutchison and Veon (Wind) into a joint venture to compete with incumbent Telecom Italia (TI). There is an element of FMC in this deal as well: Hutchison had no fixed operation in Italy, while Wind was the third-largest fixed and mobile operator. Having both fixed and mobile arms under the same roof is increasingly important in Europe and beyond. BT's purchase of EE and the joint venture between Liberty Global and Vodafone in the Netherlands are other major recent M&A examples that were driven by FMC.

Vodafone's talks to buy certain overlapping European assets owned by Liberty Global, Comcast's estimated $30bn bid for Sky, and a $6.6bn bid by Macquarie Infrastructure for Danish telecoms company TDC Group have revived expectations for further mergers. However, none of the European M&As look to be completely changing the telecoms landscape, with a collection of around three to four operators in each country. Competition authorities are becoming increasingly concerned about the shrinking number of operators in some countries (e.g., price rises in Austria due to Orange's acquisition by Hutchison), due to which they've blocked mergers such as O2–Three in the UK and Telia–Telenor in Denmark.

Small regional M&As are becoming far more common than in the past, in part because of their relative ease of integration. These will continue to be important. The occasional large telco mergers, such as BT–EE and Wind–Three are still expected in the future, but the largest CSPs have probably achieved as much scale as they need within their core communications markets. Their future M&A activity is likely to be focused on entering new markets and convergence. Operators will also continue to streamline their network holdings through asset sales (e.g., Sunrise Switzerland sold its mobile towers to Cellnex, and Altice is planning to sell about 13,000 tower sites in France through SFR and Portugal through MEO) or separation (e.g., BT–Openreach, Telecom Italia–NetCo, Inwit and Telefonica–Telxius), which are driving further M&As.

Appendix

Further reading

M&As in Europe Tracker: 2016–18, GLB007-000060 (April 2018)

"T-Mobile and Tele2 to form a converged alternative to duopoly in the Netherlands," GLB007-000034 (February 2018)

"Austria set to become a fully converged market with T-Mobile's acquisition of UPC," GLB007-000026 (January 2018)

"Convergence leads to consolidated Spanish telecoms sector," TE0014-000455 (May 2017)

Author

Laxmareddy Vittalapuram, Analyst, Europe

laxmareddy.vittalapuram@ovum.com

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