- Consolidation makes more sense with newer networks, CEOs say
- Deutsche Telekom, BT, KPN say they're open to European M&A
European phone carriers, who for years have been calling for consolidation in the region, say new network technologies will provide the key to unlocking cross-border deals.
Networks increasingly rely on software and less on physical equipment, making running and owning assets in several markets more cost-efficient and attractive. That’s prompting carriers such as Deutsche Telekom AG and BT Group Plc to say they’re more open to discussing pan-European mergers and acquisitions at a gathering of industry executives in Barcelona this week.
“We don’t have to work in Bratislava, in Vienna and in Prague: We could build one cluster where we run services on a software-based infrastructure,” Deutsche Telekom Chief Executive Officer Tim Hoettges told investors Wednesday at the conference, hosted by Morgan Stanley. “This would drive cross-country synergies.”
These mergers would create a market more like the U.S., where customers generally pay higher monthly bills and competition is restricted to four major carriers. There are at least ten times more phone companies in Europe than in the U.S., BT CEO Gavin Patterson said.
“The case for cross-border consolidation in Europe is strong,” Patterson said. “There are far fewer players in the U.S. in a market that isn’t a million miles different from Europe -- over time that’s something that will hold Europe back.”
Shares of Deutsche Telekom declined 0.5 percent to 16.74 euros at 9:09 a.m. in Frankfurt. BT lost 0.4 percent to 473.70 pence in London trading.
Hoettges said regulators need to create a uniform framework across the continent before consolidation in Europe picks up while Patterson said he’ll remain cautious until there are more examples that show cross-border mergers deliver results. Whatever the obstacles to pan-European consolidation, carriers agree that the current market structure isn’t sustainable.
Europe’s competition authorities have recently blocked telecommunications mergers within countries, arguing consumers would lose as the number of carriers in a market diminishes. In September, TeliaSonera AB and Telenor ASA were forced to scrap the merger of their Danish businesses after the European Commission opposed the deal that would have reduced the number of competitors in the country from four to three.
KPN would be open to discussing cross-border consolidation with potential partners, though no one has approached the company thus far, CEO Eelco Blok said. It depends a lot on infrastructure choices and using new technologies such as virtualization, which makes networks more reliant on software and less on hardware, he said.
“Does cross-country consolidation deliver value for our shareholders? Under some conditions, yes,” Blok said.