Thursday, 24 May 2018

Cross boarder consolidation no silver bullet for European telcos

By Chris Kelly, Total Telecom
Friday 27 April 18

In the run up to the Gigabit Access event in Brussels this month, Total Telecom met up with Daniel Kurgan, CEO at BICS, to discuss the state of Europe's telecoms market

A recent industry report claimed that Europe has seen a 600 per cent increase in LTE roaming, since the implementation of the Roam Like At Home initiative, but what impact will this have on the way that telcos view data going forward? Kurgan believes that this statistic is merely the beginning of a worldwide data explosion.  "Roam Like At Home has unleashed the potential of LTE roaming. Our view is that it will continue to grow massively. The data roaming is still going to see massive, massive expansion. It's more affordable, technology improves, the market dynamics are there to really make it happen. We see it in the day to day behaviour of people when they travel.  "Next summer we expect to see another massive explosion in LTE roaming [as Europeans head off for their summer holidays abroad]…

A recent industry report claimed that Europe has seen a 600 per cent increase in LTE roaming, since the implementation of the Roam Like At Home initiative, but what impact will this have on the way that telcos view data going forward? Kurgan believes that this statistic is merely the beginning of a worldwide data explosion. 

"Roam Like At Home has unleashed the potential of LTE roaming. Our view is that it will continue to grow massively. The data roaming is still going to see massive, massive expansion. It's more affordable, technology improves, the market dynamics are there to really make it happen. We see it in the day to day behaviour of people when they travel. 

"Next summer we expect to see another massive explosion in LTE roaming [as Europeans head off for their summer holidays abroad]. Waiting for 5G will take a long time to be commercially live, especially in this part of the world," he said.  

Despite this exponential growth in data consumption, Kurgan believes that operators are still fine tuning the mix when it comes to properly monetizing the huge quantities of data that pass across their networks. He warned that all-you-can-eat, unlimited data packages could lead telcos down a blind, and ultimately profitless, alley. 

"Some are already doing it – in the roaming landscape there would be no barrier to doing something like this. However, I'm not sure that it is in their economic interest to let it go that much. If you look at the outlook for telcos in Europe – financially, it's not an easy equation.  It's flat at best. The investment requirements are huge, between the fibre roll out and the very difficult business cases for 5G – totally unlimited data plans would certainly not help that equation.

"If there is a disrupter, then you need to respond and decide what you will do. We are seeing this in India and in some parts of Africa where some desperate competitors are coming to the market with very disruptive commercial approaches. The stronger ones don't follow because in reality it [the business model] doesn't work. You have to try and let the storm pass. Which I think makes more sense because if you look at telcos today the investment requirements are so big that it needs to make sense for investors to continue to invest in telecoms.

"Whether we like it or not, that is the economic reality. The whole thing is also being fuelled by the never ending debate on net neutrality, over who has to pay for the data and over who has to pay to build the networks that we use. It's still a very good market for the GAFA companies [Google, Amazon, Facebook, Apple], but for the rest of us it’s a real debate. 

"You have to remember that the European market is extremely fragmented. We look at the US market with very jealous eyes. They have scale, in terms of the number of customers. You even have scale in terms of content, with only one language to consider, maybe two with Spanish. Compare that to Belgium with its 11 million people divided into 6 million Flemish speakers and 5 million French speakers. It's a real headache. Scale is essential. Scale is what you want. If you don't have the scale, a business like ours cannot be profitable." 

With the fragmented nature of Europe's telecoms markets, you would be forgiven for thinking that a slew of international mergers and acquisitions could be about to materialise. However, Kurgan remains cautious about such an outcome. 

"The problem is that the cross-border synergies are not really proven. In-country consolidation is a no-brainer, right? You consolidate and all of a sudden you have scale and clear-cut cost synergies. Synergies on all fronts. Then it becomes about competition law – does the landscape remain competitive enough," he asked.  

"I think we have seen many in-country consolidation arrangements that have been approved. Everyone can see, regulators included, that we are a market of 500 million people with roughly 70 telcos, compared to the US where you have 350 million people and only a few big telcos, we can see why we are behind. It's not difficult to see that consolidation makes economic sense. 

"People can say "look at the USA, it's much more expensive [for the consumer", but that is where we need to find a balance in my humble view.   When I see what you get for a monthly subscription I have to ask, is it really so expensive compared to anything else you can buy in the market? 

"But for the cross-border synergies - they have not been proven. There is no clear business case. How many times have you heard about merging Deutsche Telekom with Orange, or Orange with Telecom Italia, or Deutsche Telekom with Telefonica. Where the synergies exist is not so clear. Maybe in neighbouring countries, content of common language, of course these are examples of synergies but compared to the challenges involved in integrating it all, it's not so clear. Branding is also another potential synergy – but is it enough? 

"I think that Deutsche Telekom has done a good job, integrating the T-Mobile brand and providing one big backbone for all their affiliates, but again, this is in neighbouring countries that each other. What if you tried to do that in Germany and Spain? It's not so clear cut. 

"So, to summarise, in-country consolidation, I think you want to see as much of that as possible. There will always be discussions on this – there are discussions here in Belgium, there are discussions in France and the UK is an extremely competitive market – it's a tough business out there. But cross-border consolidation – the jury is still out for me. People often say that this [European] market will end up with 4 or 5 big players, and maybe it will but you can see that it is not so obvious and that this is certainly not the only possible outcome. If it was such an obvious solution, then it would have happened already," he concluded.

 
Friday Review - 27/04/2018

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