EU to Telcos: Stop Mergers and Acquisitions but please help me urgently with 5G development

Press conference by Margrethe Vestager, Member of the EC, on the EC fines of over 19.4 million euros to five envelope producers in cartel settlement last December (EC Audiovisual Services, 11/12/2014)

Last week in the Mobile World Congress 2015 you had the distinct feeling being in an immense supermarket, strolling from isle to isle in order to find the product that you desire. For a deep pocket investor #MWC15 could be an excellent market place where she would be able to put in her “shopping basket” all those startups and SMEs that would make his investment yield great returns.

No M&As for Telcos

As many were spotted doing that last week in Barcelona, there is one “race” of investors that they could see but not touch. Those according to the new EU antitrust chief should be the telcos. The telco industry is not just another industry, particularly in a European market that is fragmented in 28 pieces. The significance of this huge market for Europe’s economy is clear as it is also clear that it is a sector that immediately influences the cost and quality of a principal day to day service for Europeans, communication. More so, currently the industry has become too popular in Brussels and beyond, not only for the upcoming big EU investment on 5G but also because the protectors of the European citizen are currently standing against telcos and whoever is trying to protect them.

Thus, in a polarised “telco environment” in Brussels, the EU absolutely needs the telcos to drive hand by hand on the 5G unchartered motorway, but also is seeking to stop the appetite of the “big fish” to eat the “small fish”. Yesterday’s “Sting of the day” was exactly on the EU’s presence at Mobile World Congress 2015, calling the world’s – not only Europe’s – biggest telcos to light the way of 5G, moving to a common standardisation and launching 5G business in Europe by 2020. However earlier this week we had Mrs Margrethe Vestager, EU Commissioner for Competition, in an interview at Financial Times, showing her absolute determination to frisk the upcoming Telco Mergers and Acquisitions (M&As) in the EU and even step on the break on them.

“I have one interest and that is to make sure that European consumers — that being citizens or businesses — can enjoy relatively innovative markets at affordable prices,” Mrs Vestager stated at FT a couple of days ago. The good Commissioner is being worried by some of the big M&As thriving the EU telco market: the acquisition of Jazztel by Orange in Spain, the merger between Telenor and Teliasonera in Denrmark, the move of Hutchison Whampoa to acquire Telefonica UK, the move of BT to buy EE in the UK and many more.

M&As like M&Ms

You see shareholders of any big company love M&As like M&Ms. They provide fast growth, expansion of business units and know how, some great executives and most of all better margins by getting the price up in a justified manner. But the tricky part is certainly for the consumers then; for them M&As are definitely not like M&Ms, especially when they see the prices of their phone or internet bills going up. And this is the biggest argument of the good Commissioner. Referring to the “Danish merger”, the Danish politician argued on the FT: “It was almost like a textbook example when the merger was announced in Denmark,” …“What happened was that the share price of the incumbent rose more than the share price of the two merging parties, which was immediately interpreted as . . . there would be less competition so that prices could go up.”

Regarding the debate on whether M&As drive investments and growth in the market by default, Mrs Vestager is rather adamant:  “Actually I have seen a number of examples of the opposite.”…“So far it seems as if it is still competition that will lead to investment and not the other way round.”  In addition, she strongly argued that in the US, where the telcos have been let loose to freely buy and merge this has resulted in smaller consumer choice span and at the same time in higher prices. In fact she described that the telco situation in the US gives “very little choice and higher prices than we do in Europe in general”.

European Parliament against Telcos

The newly appointed antitrust Commissioner is clearly finding allies in that coming from the European Parliament. According to ta statement issued by the EP : “in the next-generation broadband sector, the former monopolies have a staggering market share of over 80 %, recalling that effective competition is the best driver of efficient investment.” Furthermore, MEP Tibor Szanyi called on the European Commission to “enforce properly both ex post and ex ante competition rules in order to prevent excessive market concentration and abuse of dominance, underlining that competitive pressure is key to ensuring that consumers can benefit the most from high-quality services at affordable prices”. Finally, the Parliament being worried over the threat of European telcos’ forming monopolies underlines: “in order to maximise investments, telecoms policies should enable all players to make efficient investments by providing them with effective access to non-duplicable network assets and fit-for-purpose wholesale access products.”

Seeking the right balance

All in all, it is a custom for a new antitrust Commissioner to show early her teeth by embarking on early investigations. Let’s all remember here the work of the former antitrust Commissioner Almunia, who indeed launched several antitrust investigations, but the most “tricky” ones like the one of Google he cleverly made sure he passed them on to his successor. So, Mrs Vestager has a lot of oranges in the air currently and we hope she will be able to keep a balanced position, securing both the interests of the European consumer and the profitability of the telco market.

What is very interesting to see though in the coming next weeks in this hot telco debate is how to fit inside the same shoe the extensive needed by the EU “5G aid” and the roaming fees eradication or M&As blockage. The Sting will monitor the issue closely.

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