“Vision, courage and time!” The words that the European Commissioner for the Internal Market, Thierry Breton, spoke on Wednesday at the presentation of the results of the public consultation on the future of the electronic communications and infrastructure sector sounded like heavenly music in the business world.
The pressure that the large operators in the sector have been exerting for years is bearing fruit. “This is the only deflationary sector. “Every time we give more for less money,” José María Álvarez-Pallete, executive president of Telefónica, regularly complains. While in the US and China, with millions more inhabitants, there are only three large telephone operators, in Europe in general and in Spain in particular the competition is ruthless among more than a hundred. A reality promoted by EU competition laws that has hit companies’ bottom lines hard. “The value of the shares of European operators is at such low multiples due to the competitive dynamics of the market,” confirms Javier Arenzana, partner responsible for the Telecommunications sector at KPMG.
This reality could have its days numbered after the events of recent months. On the one hand there is the dancing of seats in the controls of Brussels. The unwavering Commissioner for Competition, the Danish Margrethe Vestager, who has always defended the existence of many operators, has taken a break from her duties to defend her candidacy for the direction of the European Investment Bank (EIB). A standby that her colleague Thierry Breton and the telecos have taken advantage of. During his time in the private sector, Breton served, among other positions, as president and director of France Telecom, president of Orange and president of Bouygues Telecom. It therefore has a direct line with the sensitivities of the large European operators, fed up with financing the deployment of infrastructure for years so that later it is the virtual operators and internet giants such as Google, Meta or Amazon who devalue the price of the services. and take the favor of the markets and the benefits of others.
The challenge of deploying the new 5G technology aggravates this situation. The report presented on Wednesday by Breton ensures that 50% of the annual income of large European operators over the next five years must be allocated to “meeting investment needs in connectivity infrastructure and replacing high-risk suppliers.” At the same time, a single European 5G base would generate between 200 and 300 million benefits and Brussels would be able to maintain control of a strategic sector.
With a geopolitical context in maximum tension and the business movements of recent months, with international funds stalking European telecom companies, the ground is fertile for change. “Yes, there may now be a little more tolerance for some countries going from four to three or two operators,” Arenzana acknowledges.
In this scenario, Spain is a key country. It has been since July 2022, when Orange (second operator in Spain) announced its merger with MásMóvil (fourth operator). Since then all eyes have been on the European competition authorities. The future of mergers in the rest of the continent depends on their decision.
“Vestager was not willing to allow that operation and if it did, it wanted to demand strong concessions. But now, with her interests elsewhere, the scene changes,” explain sources in the sector. The countdown clock to know the outcome of this operation is running out. If Orange achieves its objective, it will be understood as the starting signal for mergers in other countries. Furthermore, Breton on Wednesday advocated transnational mergers. The need is pressing. Much more so after the shock caused by the surprise entry of the Saudi Telecom fund into Telefónica, at the beginning of September. Only the current anti-takeover law has stopped it from becoming a majority shareholder of a strategic company. Can Brussels allow international sovereign funds to monitor its communications? Telecom companies have been warning about this risk for years, which is now a reality.
Telefónica’s problems are no exception. Also in Spain, there is the case of Vodafone. According to industry sources, Zegona, the British fund interested in its Spanish division, could be thinking about spinning off the company to take advantage of its most profitable divisions.
Brussels must play a match point. Defend competition or design a single market strategy with multinationals protected from foreign capital and capable of competing.