BARCELONA: Telecom companies in Europe are demanding a “new deal.” At their annual gathering in Barcelona this week, executives begged governments and regulators to have some empathy for a sector beset by slow growth, high prices, and expectations for significant capital investments in the face of constant technological change. It’s doubtful that legislators would give in to their requests very soon. Telcos will need to persuade investors that increased investment now is necessary to secure future growth in the interim.
When they shared the stage in a rare joint panel at the Mobile World Congress, the executives of Deutsche Telekom (DTEGn.DE), Orange (ORAN.PA), Britain’s Vodafone (VOD.L), and Telefónica (TEF.MC) of Spain, all agreed that Europe is a long way from becoming a single telecom market. CEO Timotheus Höttges of the German firm even went so far as to say he was done trying to establish himself as a dominant force in a market dominated by over 40 operators, 60 percent of which fail to generate a profit. He said, “You can’t ride on a dead horse.”
Höttges has a selection of horses, at least. Due to its ownership of more than 50% of the local operator T-Mobile US (TMUS.O), Deutsche Telekom generated around two-thirds of its worldwide revenue and operating profit in the United States last year, opens new tab. However, research also showed that not all telecoms have the same disadvantages in Germany. While the local division of rival Vodafone only had a 1% growth in income last year, Deutsche Telekom’s in the nation increased by over 3%. The European Commission’s over emphasis on consumer interests is one of the industry’s long-standing grievances. Brussels’ competition watchdogs are hesitant to let a country’s operator count drop from four to three as a result. The recent action by the Commission to authorize Orange’s Spanish division’s merger with regional competitor MásMóvil implies that the industry’s grievances have been taken into consideration. Currently, operators want greater clarity on the regulator’s philosophy.
It is doubtful that they will understand it. After June’s European Parliament elections, Margrethe Vestager, the Commission’s competition czar, and Thierry Breton, the former CEO of Orange who now manages the EU internal market, could not be in their positions. Furthermore, the industry’s request that governments change the process by which they auction off spectrum to the highest bidder is too blatantly selfish to win over the government. European telecommunications companies lack the financial weight of U.S. IT firms. 179 billion euros ($194 billion) is the total market capitalization of the businesses run by the four CEOs who were on the same Barcelona stage. That’s less than Netflix and only a tenth of Alphabet, the company that owns Google and Amazon (GOOGL.O), opens new tab.
