Photographer: Angel Navarrete/Bloomberg

Europe's Phone Industry Chief Makes Case for More Consolidation

  • Cut-throat competition hampers investment, GSMA's Granryd says
  • Network owners put pressure on regulators to allow deals

Phone-carrier mergers in Europe are needed to secure investments for data networks and prevent the region from falling behind other parts of the world, said an industry group chief, putting pressure on regulators scrutinizing billions of dollars in proposed deals.

“Consolidation is duly needed in Europe,” Mats Granryd, the newly appointed director general at industry group GSMA, said in an interview at the group’s headquarters in London. “Consumers are important, but we need to make sure the business is thriving and able to put money into the networks.”

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Granryd and the carriers he represents are pushing for European regulators to allow for more combinations that would alleviate competitive pressures and bring about cost savings. TeliaSonera AB and Telenor ASA abandoned a Danish merger in September amid European Union objections, and Competition Commissioner Margrethe Vestager has said consumer benefits, such as avoiding price increases, are central to her scrutiny of phone deals.

Next up, CK Hutchison Holdings Ltd. is seeking approvals for two major deals. The Hong Kong-based company received a statement of objections cataloging EU concerns over its plans to create the U.K.’s biggest mobile-phone business by combining its Three unit with Telefonica SA’s O2. Hutchison is also trying to combine its Italian business with that of VimpelCom Ltd.

Next week’s Mobile World Congress in Barcelona, an annual phone-industry event organized by GSMA, has attracted more interest than before from EU officials, said Granryd, a former chief executive officer of Sweden’s Tele2 AB. He argues the ever-increasing data content in networks makes the issue of expediting mergers more urgent.

“Having poor quality in a voice conversation is just irritating, and if you have a dropped call, you can call back,” he said. “Having a dropped call in your data session is a completely different thing: did you buy your ticket, did you transfer your money or not? Where is it? We need to be super-connected in order to be competitive as an area.”

Europe’s top 6 phone companies according to 12-month trailing revenue.

Among other pending deals set to receive regulator scrutiny, Vodafone Group Plc and Liberty Global Plc agreed this week to merge their Dutch assets, after abandoning talks over a broader asset swap last year. Orange SA is in discussions to acquire Bouygues Telecom in France in a transaction that could be valued as much as 10 billion euros ($11 billion), reducing the number of phone carriers in the country to three from four.

“Going from four to three is almost a no-brainer,” Granryd said. He pointed to Austria as a healthy example of such consolidation. The number of service providers in the country shrank to three from four after Hutchison bought Orange Austria in 2013.

Still, the choice of metrics is central to the merger benefit debate, which has few long-term examples. GSMA argues that unit prices, or cost per megabyte consumed, have declined in Austria, signaling that merger concerns are overstated. Industry critics, including Helsinki-based consultancy Rewheel, counter that this effect is due to growing data consumption, and consumers pay more to purchase the same amount of gigabyte allowance. Hutchison’s pledge to freeze prices in the U.K. has met the same criticism.

Industry Challenges

Granryd lauded carriers’ infrastructure spinoffs as a good way to free up cash and focus on customer service. Telecom Italia SpA listed its towers unit last year while Telefonica SA is considering an initial public offering of its newly created tower and submarine-cable unit Telxius.

“That’s a brilliant way of reducing your balance sheet,” Granryd said. “It’s truly a different business, it’s real estate.”

Granryd also urged the industry itself to take action to improve its standing among consumers.

“Customer interface, customer service, business models, lock-in periods, the fine print, the bill shocks, roaming,” Granryd said, ticking off a list of longstanding customer complaints. “We need to correct those as an industry.”