Three is the magic number for European telecoms operators, and Spain is leading a fresh round of consolidation of the fragmented market.
Orange and MasMovil said on Tuesday they were in exclusive talks to combine their Spanish businesses through a €19.6bn joint venture. If they reach agreement and regulators approve, Spanish players would be reduced from four to three.
Spain’s largest operator currently is Telefónica, followed by Orange, and Vodafone. MasMovil, the fourth biggest operator, was taken private in 2020 after a leveraged buyout by private equity groups KKR, Providence Equity Partners and Cinven.
Anna Gross reports the news will be perceived as a blow to Vodafone, which had also been talking to parties in Spain about possible deals for its Spanish business.
Vodafone chief executive Nick Read has been under pressure from activist investor Cevian Capital to seek deals more aggressively. He has identified Spain, Italy and the UK as being ripe for a reduction from four to three, and Portugal to go from three to two operators. Orange has said the French market would benefit from a four-to-three move.
The European Commission has seen things differently, believing the current level of competition is needed to keep prices down and give consumers more choice. The operators say they need to increase their returns to justify huge investments in broadband fibre and 5G. They have been selling off their towers businesses to raise more cash lately, but also see consolidation as key.
“The [Spanish] deal is the first major test of regulators’ appetite for in-market consolidation since the pandemic,” says Kester Mann of the CCS Insight telecoms research firm. “The industry has been pinning its hopes on a more lenient stance as the value of high-quality connectivity became ever more apparent.”
It can’t count on the commission relaxing its criteria though, with the EU itself making billions of euros available for network upgrades. And any attempted consolidation can be dragged out over years by regulators’ objections. The industry just has to look at the efforts to merge Three and O2 in the UK in 2016. An EU block on the agreement was only annulled by a European court four years later, by which time, the deal was dead anyway.
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