Brussels’ volte-face follows a quarterly telco results season which featured many “losses widen” messages from executives
The European Commission has finally signalled it is open to European telecoms mergers to help fund the rollout of 5G and fibre networks. The move suggests a dramatic policy reversal which is responding to waves of consolidation calls from the telecom industry drowning in debt and lacking the necessary scale to make the investments needed for the EU to reach its 2030 Digital Decade policy programme goals. The new approach will see an end to controversial policies like the Commission’s reticence for four-to-three mergers in a market.
According to a draft white paper seen by the Financial Times (subscription) and Reuters, the Commission found that “fragmentation [of the sector] could impact the ability of operators to reach the scale needed to invest in the networks of the future, in particular in view of cross-border services.”
While the regulator acknowledged competitive markets benefitted consumers, a new measure of “industrial competitiveness and economic security” should be factored in when looking at sector consolidation. The commission is preparing to announce its decision on whether the proposed €18.6bn Orange and MasMovil joint venture in Spain can go ahead, as early as next week.
“Creating a true single market for telecommunications services requires a reflection on encouraging cross-border consolidation,” Thierry Breton, the EU’s commissioner responsible for the single market, told the FT. “Scale is key to deliver on the massive investments needed to build the cutting-edge digital infrastructure Europe needs for its competitiveness. Too many regulatory barriers to a true telecoms single market still exist.”
Operator association ETNO has been telling anyone who will listen that next week’s report on “Connectivity Package on digital networks and infrastructure” has a lot riding on it to be game-changing, pointing out that to hit 2030 targets will require a €200bn effort.
ETNO – which just welcomed Liberty Global as a full member and OVHCloud as an observer member – believes the current rules will leave the sector falling short. Buried under billions of euros of debt, European telecom operators operate in small, highly competitive markets, unlike their peers in other regions, making it difficult for them to find growth.
In a recent report, ETNO found European retail markets remain uniquely fragmented and a real European telecom single market remains unaccomplished. The report found that in 2023 Europe counted 45 large mobile operating groups with more than 500.000 customers, as opposed to 8 in the USA, 4 in both China and Japan, and 3 in South Korea.
As a result, in 2022, telecom capex per capita in Europe stood at €109.1, lower than in South Korea (€113.5) and far lower than in the US (€240.3). In absolute terms, however, European telecoms investment reached €59.1bn in 2022, up from €56.3bn the previous year, with 60 to 70 % being dedicated to mobile and fixed network rollouts.
Europe’s ARPU is weakest: mobile ARPU was €15.0 in Europe, as opposed to €42.5 in the USA, €26.5 in South Korea, and €25.9 in Japan. The same is true for fixed broadband ARPU, which was €22.8 in Europe, as opposed to €58.6 in the USA and €24.4 in Japan. Only South Korea was lower (€13.1).
And return on capital employed has almost halved among ETNO members.
Europe spoiling for a “fair share” fight
More controversially, the EC white paper also said the scope of current telecoms rules could be broadened because of the convergence between electronic communications networks and cloud services, according to Reuters. “The Commission may consider the broadening of the scope and objectives of the current regulatory framework to ensure a level playing field and equivalent rights and obligations for all actors and end-users of digital networks,” it said.
If true, that is a big lobbying win for Europe’s telcos, but the mainly-US Big Tech will be ready, as will be their own body the Computer & Communications Industry Association whose European head Daniel Friedlaender recently said: “Rather than discussing how the EU can convince investors to give money to certain telecom operators, we should be talking about how we can drive consumer demand for all connectivity services first.”
Subsea cable protections
The FT reports that the white paper recommends Member States beef up their subsea cable protection and that this may be done by widening the “NIS 2” directive to other entities that may also operate submarine cables such as cloud or data centre services providers. The white paper reportedly added that studies carried out by the commission found the EU was lacking accurate mapping of existing infrastructures, common governance of cable technologies and cable-laying services as well as ensuring the “rapid and secure” repair and maintenance of cables. It also hinted the Commission may consider investing more in cables of European interest.