The true economic impact of the coronavirus pandemic will not be realised for many years, but, in the short term, its effect on the telecoms sector seems clear. Telcos were far from the worst financially affected companies as a result of the virus, but they nonetheless saw a significant dent to their earnings and growth, partially through major losses in roaming revenue…
The true economic impact of the coronavirus pandemic will not be realised for many years, but, in the short term, its effect on the telecoms sector seems clear. Telcos were far from the worst financially affected companies as a result of the virus, but they nonetheless saw a significant dent to their earnings and growth, partially through major losses in roaming revenue.
It should be remembered that slow growth is nothing new for the European telecoms sector, which has been something of a laggard for a number of years now, with expensive network upgrades, including for 5G, as well as price wars biting into profits. Throughout this period, European regulators have widely resisted attempts at major industry consolidation, such as the proposed merger between Three and O2.
However, the economic strains of the pandemic may in fact be the catalyst for a change in regulatory attitude in Europe. In May, the European Commission’s decision to block the Three–O2 merger was notably overturned by the European Court of Justice, having failed to prove that the move would damage competition or drive up prices for consumers; since then, O2 has instead moved to merge with Virgin Media instead. A month later, in June, the EU’s antitrust chief notably encouraged more cross-border deals in the telecoms sector.
Following this mellowing in regulatory sentiment, Bloomberg
Intelligence’s Europe Telecommunications 2021 Outlook, published at the end of last year, found a number of European nations likely to see consolidation, according to mergers and acquisitions desks, with the most likely being Spain and Sweden. However, it was the Netherland’s KPN and the UK’s BT Group were the standout predictions as targets for M&A.
Of course, part of the appeal here for private investment and M&A is the perceived rebound of the telecoms sector financially. Proposed by many to be at the heart of Europe’s economic recovery following the pandemic, many have forecast the telecoms sector to rally significantly in 2021, as the widespread rollout of Covid vaccines begin to allow something of a return to normality and 5G begins to be monetised.
“M&A will likely pick up with the success rate of Covid-19 vaccine program, which de-risks the outlook for the rest of the year,” Maarten Geerdink, head of European equities at NN Investment Partners, told Bloomberg.
However, with new lockdowns in place across various European nations and the emergence of at least one new strain of the virus, this rosy forecast for 2021 could be in jeopardy.
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