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Fitch: Europe's Too Crowded

Brace yourselves for some European M&A action, people.

"The recession has brought into stark relief the fact that certain markets in Europe have too many operators and that in-market consolidation is needed, particularly in the mobile sector."

That's the view of Michael Dunning, managing director of the London-based Telecom, Media, and Technology (TMT) group at Fitch Ratings Ltd. , which has just completed a half-year analysis of the financial health of Europe's main operators.

Fitch found that "the days of robust mobile and fixed broadband subscription growth are over. With competition continuing at these high levels, there is a real possibility that any uplift from new revenue drivers such as mobile data or bundled content" might be negated by the intense competition that continually drives down prices.

It's not surprising that Fitch has come up with a gloomy review: Recent results and forecasts from Europe's national operators were largely depressing. (See Euro Giants Take Cover and Euro Sales Slipping Away.)

Some markets, though, are feeling the pain more than others.

The markets in greatest need of some M&A activity, reckons Fitch, are the U.K., Germany, Spain, Greece, and Poland, where "aggressive price erosion, exacerbated regulatory pressure, and poor economic fundamentals have taken their toll" during the first half of the year.

Fitch's report notes that the average revenues in those markets during the first six months of 2009 fell by 3.2 percent compared with the same period a year earlier.

Other markets suffered less. Across France, Italy and Benelux (Belgium, the Netherlands, and Luxembourg), the average decline in revenues was 1.8 percent.

But the trend is negative. And with carriers facing flat revenues, increasing customer acquisition costs, and intense investment cycles (fixed fiber access and next generation mobile), the Fitch team insists it's hard to find any growth potential for Europe's carriers in the near future unless consolidation takes place.

The Fitch team doesn't suggest any good merger fits or likely acquisitions, but there has already been talk of mobile operator consolidation in the U.K., with T-Mobile (UK) identified as a potential target. (See Vodafone Mulls T-Mobile Bid.)

— Ray Le Maistre, International News Editor, Light Reading

digits 12/5/2012 | 3:58:05 PM
re: Fitch: Europe's Too Crowded Fitch, essentially, doesn't like the underlying business fundamentals of intense competition, and the ultimate squeeze on earnings that brings. But what it says makes sense -- the question is, which market will be first for some game-changing M&A? The U.K. looks likely, but I wonder if deeper deals such as infrastructure sharing and operations outsourcing might be an alternate route to the same goal, though one that will deliver less of a bonus for the bankers.

There's also a chance, of course, that we might see some major consolidation that would create some even bigger Super carriers than we have already, with the likes of Telefonica, France Telecom, and Deutsche Telekom dominating Europe to an even greater extent. FT has already looked at buying TeliaSonera, so it's not like the concept isn't being considered.

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