Phone Operators Implore Europe to Facilitate Domestic Deals

European regulators need to allow phone businesses within a country to merge to avoid them being choked by network costs, a top industry group said before rulings on whether to approve such deals in Germany and Ireland.

Efforts by European Commissioner for the Digital Agenda Neelie Kroes to establish a single telecommunications market across the region don’t address the problem that the rollout of infrastructure consumes an ever-growing share of operators’ revenue, said Tom Phillips, GSMA’s chief regulatory officer.

“The most pressing need that we have at the moment in Europe is to eliminate some of the duplicate investment in network infrastructure,” Phillips said in a phone interview yesterday. “That needs to be addressed immediately if investment is to be reestablished.”

The call comes weeks before the commission is set to decide on the combinations of Telefonica SA (TEF)’s German unit with Royal KPN NV’s E-Plus and Hutchison Whampoa Ltd. (13)’s bid to buy Telefonica’s Irish unit. The decisions may set a blueprint for more in-market consolidation in Europe, which has fallen behind North America and Asia in the availability of fast mobile Internet access. Both proposed deals would reduce the number of national wireless network operators to three from four.

Even though European phone companies on average didn’t increase investments per subscriber between 2011 and 2013, capital spending rose to 18.8 percent from 16.1 percent of revenue per user over the period as sales declined, according to a report released by the GSMA.

‘Scale Business’

The 23-member Bloomberg Europe Telecommunication Services Index fell 0.6 percent as of 10:20 a.m. Frankfurt time, extending its decline to 3.9 percent this year.

Wireless competition in their saturated home markets curbed profits at Switzerland’s Swisscom AG and Norway’s Telenor ASA, which reported earnings today. The companies are adding TV and Internet offerings to boost revenue, with Telenor also seeking wireless growth in markets such as Bulgaria and Myanmar.

“We are indeed in a scale business that would benefit from smaller players combining,” Urs Schaeppi, the CEO of Bern-based Swisscom, said on a conference call today. “It actually makes sense from a competitive perspective in the longer run.”

Market Entry

Regulators reviewing mergers should avoid over-emphasizing short-term price increases in determining whether a deal is detrimental to consumer interests, Phillips said. Remedies that lead to the entry of a new network operator to take the place of an eliminated company perpetuate problems of duplicate infrastructure, he said.

Liberty Global Plc’s UPC unit is poised to offer mobile phone services in Ireland, said two people familiar with a transaction that may pave the way for Hutchison to win European Union approval to take over Telefonica O2 Ireland unit.

GSMA represents almost 800 mobile operators in 220 countries, including France’s Orange SA (ORA), Germany’s Deutsche Telekom AG (DTE) and the U.K.’s Vodafone (VOD) Group Plc, according to its website.

Joaquin Almunia, the EU’s antitrust chief, hasn’t been swayed by telecommunications firms’ calls to ease merger rules, saying national markets are “often highly concentrated with only a limited number of network operators” in each EU nation. Deals to combine phone operators can’t come at the cost of higher prices for customers, he has said.

Deeper cross-border alliances has been one way for Europe’s carriers to seek savings. Vodafone and SFR, the French operator that billionaire Patrick Drahi’s Numericable Group SA agreed to buy last month, extended an alliance today to provide fixed and mobile services for multinational businesses in France. The four-year deal includes a roaming agreement for customers traveling to and from the country.

Deutsche Telekom and Orange have started a procurement venture covering an annual 13 billion euros ($18 billion) of joint purchasing, though have refrained from deeper integration.

To contact the reporter on this story: Cornelius Rahn in Berlin at crahn2@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net Mark Beech, Ville Heiskanen

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