Consolidation is coming in the European telco space – Orange

While consolidation has been king in the world of the internet and the communications networking vendor market, the same trends have not been seen to date in the telecom operator space. Not for long according to Orange’s Deputy CEO Gervais Pellissier.

For one reason or another, including competition concerns from the European Commission, consolidation in the telecoms service provider sector has been kept to a minimum. There have been a couple of examples, such as BT burning though a few notes taking on EE, but in comparison to other areas the merger and acquisition market has been relatively quiet.

“With the internet we have seen consolidation,” said Pellissier. “We (the telco industry) are still a very fragmented industry. There are roughly 45 different telecom groups in Europe alone, which is too many.”

Having a broad number of telcos is not necessarily a bad thing, it keeps the landscape fair for the consumer and the telcos themselves on their toes. But on the contrary, it makes a complicated conversation and spreads R&D investments thin across the numerous organizations. Overheads are increased and combined with the eroding profit margins, it’s a downward spiral towards smaller investments in new ventures and less competitiveness against the challengers.

“There are too many operators throughout Europe, this will change in the next couple of years,” said Pellissier.

Pellissier believes there will be a consolidation of numerous mid-sized players across the European region, maybe in some sort of federation, but it won’t be long before the major players are starting to weigh into the equation. Though one of the main challenges will continue to be the European Commission.

In the case of Three and O2 the case was relatively simple. The acquisition would have removed a major player from the UK market and thus removed competition for the consumer. Unless a new player is entering into the space the European Commission is seemingly fixated on having at least four brands in each market. But cross boarder consolidation could be a real opportunity for the big boys who are looking to take advantage of a single digital economy spread across Europe.

“Even if the competition authorities are trying to stop certain mergers, for example Three and O2, it will still continue,” said Pellissier. “Small player consolidations will continue, but we’re going to see some big moves on the horizon.

“The new digital code will have to address how spectrum auctions are standardized across the region, as well as other things. The end objective should be to take the telecom operations beyond national boundaries.”

Pellissier was relatively coy on how active Orange will be in the future though got the impression there certainly will be some moves in the nearish future. The business is already looking at how it can consolidate its Belgium and Luxembourg operations in an effort to remain competitive, but this is unlikely to be the last structural change. Whether this means acquisition in the near future is down to speculation for the moment, though the message here was clear; the telco industry will be smaller, more agile and more competitive.

One acquisition which has shaken the world in recent weeks is the AT&T and Time Warner saga, but are deals of this nature going to make it across the Atlantic? It’s already started according to Pellissier.

Last year, Telefonica completed the purchase of Digital+ which gave the telco new content options for diversification. The telcos will be missing a massive opportunity if they create a network which supports such vast amounts of traffic and they don’t populate it with their own content and video. It’s a simple opportunity to create new revenue streams and counter the erosion of profits which has become common place in the wider telco industry.

A deal of this size is unlikely to be seen however simply because of the nature of Europe. It’s a collection of countries in which content providers are all localized. There are cultural differences across the US, though nothing in the same bracket as Europe. Content acquisitions will take place, but don’t hold your breath for a $87 billion equivalent on this side of the Atlantic.

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