European telecommunications companies should prepare for the biggest wave of mergers and acquisitions in decades, according to a study by consultancy Oliver Wyman.
The “great fragmentation” of European companies, compared to telecommunications groups in the United States and China, is an obstacle to European operators’ ability to invest in digital infrastructures and services.
Consolidation, especially through the cross-border operations model, could strengthen their competitiveness and expansion into other markets, “making them more profitable and sustainable over time”, indicates the report.
Data cited by the consultancy indicates that the average number of subscribers per European operator is just five million, compared to 107 million customers, on average, in North American companies, and 467 million in Chinese companies.
The average monthly revenue per user generated by fixed and mobile services in Europe is less than half that of the USA, and the capital expenditure (CAPEX) per capita is just 109 euros, while in the North American market it is 174 euros.
For the authors of the study, the European regulatory environment, which has traditionally limited the number of mergers and acquisitions in the sector, is in a phase of change, with regulators adopting “an increasingly flexible stance” that favors concentrations.
“Influenced by the reports of Mario Draghi and Enrico Letta, they allow operations to advance through ‘compromising solutions’, rather than direct blockages, with the aim of accelerating these changes to 2028, instead of 2030”, they maintain.
Oliver Wyman’s study details five M&A scenarios designed to increase the scale of European operators, from mega-mergers to portfolio changes.
In the first scenario, European markets with five or six companies are heading towards greater concentration, with three or four dominant players, favoring “scale and efficiency” and reinforcing “investment capacity and profitability”, although facing lengthy regulatory processes that may involve the sale of assets and the sharing of infrastructure.
In the second scenario, companies divest in non-strategic assets to focus on areas with greater growth potential and, in the third, they export their business models and experience to new markets.
The acquisition of digital services, especially in the B2B segment through cloud solutions, IoT, cybersecurity and other digital offers corresponds to the fourth scenario.
The fifth, and final, scenario envisages a reversal of the disinvestment made in telecommunications infrastructure (‘carve-out’), such as towers and fiber, now entering a new phase of consolidation between fiber companies and alternative network providers, as well as cross-border mergers between tower companies with a view to the “formation of regional or pan-European conglomerates”.
According to the Oliver Wyman report, national consolidation operations record “the highest average transaction value in the sector, reaching 2,100 million euros”, while ‘carve-out’ and infrastructure consolidation operations have “an average value of 600 million euros”.