EU mobile operators urged to consolidate

If Europe wants its mobile networks to be as advanced as those in the US, further mergers are necessary among wireless operators, said Ronan Dunne, the chief executive of Telefonica SA’s O2 unit.

European regulations need reforms to allow cross-border mergers, which will support investment in new networks and increasing wireless data use, he said. Bigger companies, like Telefonica and its peers with operations in several countries, will then be in a position to “roll up” some of the smaller operators.

“This place is just so fragmented” and that’s discouraging acquirers, Dunne said. In Europe “there’s a realisation that you need in-country scale, but you also need some European champions”.

Telefonica agreed to sell its O2 unit in the UK to Hutchison Whampoa Ltd for £10.25bn (€13.95bn) last week. The merger will combine O2 with Hutchison’s Three business and take the UK mobile market from four players to three. It will also make the merged company the biggest wireless operator in the country with more than 30m subscribers.

The European Union’s competition commissioner Margrethe Vestager said last month that telecom consolidation shouldn’t “affect the affordable consumer prices.” The commission will probably decide on whether or not to approve the tie-up between Three and O2, the companies have said.

Vestager’s predecessor, Joaquin Almunia, was criticised by some national regulators for approving similar deals that shrank the number of competitors in Austria and Ireland.

While operators wait for new regulation to allow networks that flow across countries’ borders, there are two ways to grow through acquisitions: combining with another wireless company or adding new services such as broadband and TV.

“Scale is going to continue to be important and increasingly important,” Dunne said. “We needed to be a buyer or a seller.”

The deal with Hutchison creates one of the few remaining pure-play mobile operators in the UK. Dunne declined to comment on how a merged Three-O2 might participate in cross-border deals.

BT Group Plc, the former phone monopoly and biggest broadband provider in the U.K., has agreed to buy EE Ltd, the biggest mobile operator. Sky Plc, the pay-TV operator, and TalkTalk Telecom Group Plc, a TV and broadband provider, are both paying O2 to resell its mobile service to their customers.

Still, less than 2% of the market buys all four services – broadband, mobile, fixed-line and TV – from the same provider now. While that’s bound to go up, O2 executives don’t think it will become the primary way people buy phone and TV service, Dunne said.

Bloomberg