Europe has become stifling for expansion and investment in the telecommunications industry, and new regulations cutting roaming charges will only make things worse, according to executives from the region’s giants such as Orange SA, Vodafone Group Plc and Deutsche Telekom AG.
“Our main problem in Europe is that we have no growth,” Orange Chief Executive Officer Stephane Richard said in Brussels. “Europe has to accept the idea that the price for services, for new technology, for mobile broadband, for fiber will need to increase a little bit. If not, I don’t see how we could manage; there is no more money in Europe.”
Carriers are rebelling against proposals by European Union Commissioner Neelie Kroes to eliminate roaming charges while standardizing some regulation, such as the allocation of spectrum. Her goal is to encourage data use, increase investment and make Europe more like a single market. Carriers say they’re being deprived of an important revenue source in a difficult market amid price wars and weak economies in several EU countries.
“Bringing down barriers is ultimately good for the sector,” Kroes said in a keynote speech yesterday in Brussels at a conference hosted by the European Telecommunications Network Operators’ association. “But you can’t do that without removing roaming surcharges, without removing the arbitrary high charges for calling across borders.”
European telecommunications companies have invested 2 percent less annually on infrastructure in the last five years, meaning 3.5 billion euros ($4.7 billion) less was spent in 2012 than 2008, according to a survey by Boston Consulting Group commissioned by ETNO.
Carriers’ revenue is also expected to fall as much as 2 percent a year in the industry until 2020, for a cumulative decline of as much as 190 billion euros, according to the report.
Orange shares rose 0.3 percent to 9.68 euros at 9:23 a.m. in Paris. Vodafone fell less than 1 percent to 216.85 pence in London, and Deutsche Telekom was down less than 1 percent to 11.13 euros in Frankfurt.
Carriers want more freedom to consolidate and less regulatory oversight over aspects of their networks, such as what technology they can run on their networks or how much they can charge other companies to use their infrastructure, executives said yesterday. They say they need the freedom to consolidate within markets to stabilize prices.
“There is very little in the proposals that concretely allow us to drive further consolidation,” Philipp Humm, Vodafone’s head of Europe, said at the conference.
Even so, the industry’s frustration with regulators may be driving an increase in share valuations as mergers and acquisitions pick up for the industry across Europe, said Robin Bienenstock, an analyst with Sanford C. Bernstein.
“The regulation event has proven to be so inordinately time-wasting and frustrating and dead-end that you’re starting to see companies act,” Bienenstock said at the event. “The regulations are so lousy that people are starting to act in spite of it.”
Orange’s Richard said that while he previously wouldn’t pursue deals because he was convinced regulators would reject them, he’s decided the best strategy is to test the market with deals to find out what regulators will tolerate.
“We cannot compete in our environment anymore,” said Timotheus Hoettges, deputy CEO of Deutsche Telekom. “Europe is at a scale too small to be relevant.”
Hoettges said that the major European carriers would all have to combine to have a market capitalization comparable to AT&T Inc., the biggest U.S. phone company. Dallas-based AT&T has a market value of about $175 billion.
With antitrust scrutiny making consolidation tough, carriers are expanding services as a way to grow, with mobile operators adding television and fixed services to increase monthly bills and customer loyalty. Vodafone agreed to buy German cable company Kabel Deutschland Holding AG this year to add more services in its biggest market.
Telefonica SA is testing competition regulators’ tolerance, attempting to take over Royal KPN NV’s German unit to merger their local companies. The deal, which would cut the number of German carriers to three from four, is seen by Richard and others in the industry as a bellwether for consolidation.
Kroes doesn’t see her proposals as standing in the way of consolidation, she said -- they may even help encourage it ultimately.
“We have listened to industry concerns, so that pan-European deals can come onto the market, sustainably, available for all as soon as possible,” she said.