Media speculation about one Telco buying another is rife at the best of times, but expect there to be a whole lot more in the coming years. There will need to be greater consolidation among Europe’s operators if they are going to achieve economies of scale that provide new revenue streams and greater profitability for their shareholders, and fight back against over-the-top (OTT) players eating into their core services.
Mergers and acquisitions in the European Technology, Media and Telecoms (TMT) sector increased in each quarter of 2013 to reach a total of 3,192 deals for the year, an increase of 5% over 2012, according to specialist M&A advisor Regent Associates. The total value of deals in 2013 was $221 billion, 69% higher than in the previous year.
Of course, the buyers will have to satisfy the regulators that they are not adversely affecting market competition. The deal for 3 Ireland to acquire O2 Ireland, helping it to challenge clear market leader Vodafone, has met with European Commission objections; in Germany, Telefonica Deutschland’s proposed acquisition of KPN’s E-Plus is also being scrutinized. Yet in other respects the EC is clearing the path to a consolidated market by way of easing roaming restrictions and proposing measures to create a single European telecoms market.
To be sure, there will be further appetite for deal-making as Telcos look to consolidate in some fiercely competitive markets. Regent Associates says the quarterly deal flow at the end of 2013 was the highest since 2006. How long before the flow turns into a flood?