European telecom sector needs in-market consolidation, says Portugal Telecom CEO

The CEO of Portuguese incumbent Portugal Telecom, which also holds 23.34 per cent of Brazilian player Oi, has voiced concern over Europe’s ability to continue to compete on the global telecoms stage if further consolidation among the operator community is not encouraged.

Speaking at a user group held by Portuguese business assurance specialist WeDo Technologies last week, Zeinal Bava said Europe should look to the US for a lesson. “Europe doesn’t like in-market consolidation and the US loves in-market consolidation,” he said. “And I think the US is right, because if you don’t have in-market consolidation, if you don’t look at the EU as one big market then, we will always lag behind the US.”

The European mobile sector has been damaged by operators’ “irrational behaviour” on pricing, partly driven by regulation on termination rates, he said. Termination rates in Europe came down too quickly for operators to be able to adjust their cost bases, he said, at the expense of margin and shareholder return.

“If you do something at the expense of your shareholder’s money. Guess what?” he said. “He’s not going to give you capital to invest in your network.”

With ARPU in some markets in Europe dropping to $15– 20 per month, Bava said, technology upgrades become difficult to justify. “The US is the only market where I think they have found the right business model because ARPU in mobile in the US is $50.”

Bava said that Portugal Telecom lacks the capital to lead any consolidation itself and, in any case, is focused on its Brazilian and African portfolios. But Europe faces serious challenges if operators cannot drive scale in the region, he said.

“European operators have to get together simply because we are competing against very large companies worldwide. Either we scale to compete or we get priced out of the market. Unfortunately Europe has taken the view that in-market consolidation has not been a priority and that means it will be very difficult for European operators to aspire to the kind of efficiency that a market like the US is developing now.”