Summary Bullets:
- There are increasing noises from European telco leaders and politicians that the market is too fragmented to succeed and needs consolidation. But consolidation won’t transform European tech.
- Telefónica, BT, and others have divested non-core international operations as they refocus on the European market and look to grow regional strength and depth.
Marc Murtra, the new chairman at Telefónica, has been reported as wanting to pursue deals across Europe following the Spanish telco’s sale of its business in Argentina for EUR1.2 billion. Telefónica is also selling its stake in Telefónica Colombia to Millicom and has been reported to be planning to sell its Mexican operations.
The company is undertaking a strategic review ‘to reflect on a new time in Europe’ and is set to update the market in H2 2025, but Murtra says ‘the European telecom industry should move in more Euro-centric decisions… with consolidation driving future growth.’
Deutsche Telekom’s CEO, Tim Höttges, has recently expressed himself as ‘dissatisfied with the European regulatory situation’ and the competitiveness of Europe when compared with the US. This is reflected in terms of shareholder returns, with Deutsche Telekom outperforming its European peers largely as a result of its majority ownership of T-Mobile USA.
Following the report on the future of European competitiveness by Mario Draghi highlighting the relative weakness of the region’s technology sector in a global context, telco leaders (and governments) across the continent have resumed their perennial discussions about how to create powerhouses able to compete on the global stage.
The problem is that Europe’s biggest telecoms operators have a defensive mindset. Their C-Suite’s first thoughts are: How to do more with less? How to cut costs? How to retain market share? How to squeeze the most money out of customers? How to placate increasingly activist shareholders? So any likely combination of large European operators would most likely be predicated on cost savings to make them more competitive in financial terms, not in market innovation.
We must note the dichotomy here. Telcos think of themselves as tech-cos. They are, as are the likes of AT&T and Verizon in the US. But they are in the same boat. Most of the problem is the false equivalence with tech giants like Amazon, Google, Meta, and Microsoft. No telco has matched the growth of these tech behemoths. Telcos dabbled in cloud but couldn’t match the new players – ultimately realizing that their core competence is in connectivity. In fact, without explosive growth in cloud services and internet uptake, imagine where they might be…
Consolidation across Europe seems inevitable – even after the questionable success of the merger of Swedish and Finnish incumbents Telia and Sonera. But do not expect any European telco combinations to form dynamic new world-beating tech-cos. The best that can be hoped for is that they benefit from economies of scale and continue to grow their market by moving up the value chain in terms of connectivity-associated and -enabled propositions such as security, cloud connectivity (including AI), and mobility.
Nevertheless, consolidation would still take a huge leap to overcome geopolitical, regulatory, sovereignty, and employee barriers. As for the nuts and bolts of combining networks, processes, systems, cultures, organizations, shareholders and so forth… it would not be easy.