The proposals of European digital commissioner Neelie Kroes to harmonize the EU’s telecoms market were bound to be controversial. Operators object to the eventual end of roaming fees while there is general opposition to more centralization of spectrum and policies, even though the ‘super-regulator’ plan has been dropped. But the strength of criticism from a powerful organization, BEREC (the Body of European Regulators for Electronic Communications) was unexpected.
BEREC claims the proposals, which Kroes outlined last week and will seek to push through the European Parliament soon, have been rushed out, and could create legal uncertainty. In a statement, the body – which acts as an advisory group to national regulators as well as the European Commission ‘ complained that it had not been consulted before the package of reform proposals, dubbed ‘Connected Continent’, was made public.
“BEREC would have welcomed the opportunity to cooperate with the Commission during the conception and elaboration of this legislative initiative, which was also not subject to a public consultation,” said the statement. “As a result, the Commission has not had the opportunity to test the extent to which its proposals will deliver on its stated objectives, or the extent to which they are operationally feasible or effective, or might otherwise have unintended consequences.”
The main elements of the legislative package, if approved, would be the end of roaming fees; net neutrality; encouraging states to coordinate the timing of spectrum allocations; giving consumers the right to a 12-month contract and to cancel a broadband contract if the promised speeds are not delivered; and harmonizing fees for access to incumbent networks.
BEREC is broadly in agreement with the objectives of greater harmonization, neutrality and consumer choice, but believes the actual proposals have not been well thought out. ‘BEREC is concerned that the proposed regulation is being rushed through the European legislature without proper explanation and full exploration of its potential consequences,”it warned, and that haste could jeopardize the current regulatory framework, which exists to encourage competition and consumer benefits.
The body also said ‘Connected Continent’ would create a “substantial shift” in the balance of power from member states and national regulators to Brussels. “These proposals risk undermining the ability of national regulators, whether acting individually or collectively, to take appropriate and proportionate regulatory action in all the relevant markets,” it added. BEREC is a fairly new player on the European telecoms scene, having been formed in 2009.
It played down some of the factors which Kroes says make her reforms essential ‘ the fact that Europe lags most of the world in 4G roll-out, and is losing its place at the top table of wireless innovation and technology. BEREC believes the picture is not as bleak as the commissioner has painted it, and indeed, some of her changes may actually intensify the trend for European carriers to be acquired by outside players ‘ in particular, critics say the end of roaming fees will give cellcos less financial stability and less ability to invest in new infrastructure, and may drive them into the arms of acquirers.
Does that really matter though?
For sure, while Europe retains three of the largest wireless infrastructure makers and standards influencers, there is the prospect of some of its largest carrier brands falling into foreign ownership ‘ AT&T, America Movil, Hutchison, VimpelCom and others are building or seeking footholds in a region that, as Kroes often points out, has a lot of 4G growth in it, given the right investment and an uptick in consumer confidence.
So why the hand-wringing? Those potential incomers could bring exactly the energy and funds that Kroes and the GSM Association claim are lacking from the European Union, and may have far greater interest in supporting radical regulatory change across the community. In other words, we need to stop thinking in ‘little Europe’ terms, and remember we are in a global industry, where the important thing is to attract investment to boost jobs, services and technology leadership, wherever those deep pockets originate.
In terms of Europe’s future broadband leadership, would an enlarged Vodafone, snapping up wireline operators round the region, be a better bet than a Vodafone acquired by AT&T, which against the odds has turned into an innovator and risk-taker in its homeland, and now wants wider territories? The answer may depend on whether we still believe in the mobile-only model, which is said to be AT&T’s interest for Europe, or agree with Vodafone that only a quad play carrier can survive in a tier one position.
Hence its pursuit of Kabel Deutschland, which has so far hit various rocks. It only narrowly gained shareholder approval, and now three hedge funds which supported the bid plan to take legal action to push for a higher price. At the end of last week, Vodafone said it had attracted the support of the holders of 75% of the shares in the German cableco, despite speculation that it might fail to push through its deal (it needed to hit that 75% level by midnight on September 11, and succeeded at the eleventh hour).
However, Elliott Management, Kabel’s largest shareholder with a 10.9% stake, tendered part of its holding in order for the bid to go through, but it is now planning legal action along with two other hedge funds, Davidson Kempner and York Capital, aiming to squeeze a higher price out of Vodafone for their remaining shares. There is an additional acceptance period running from September 17 to 30 for those shareholders which have not so far accepted the Vodafone offer.
Meanwhile, Vodafone shareholders have the happy prospect of the windfall from Verizon’s buy-out of the UK giant’s 45% stake in Verizon Wireless. That may, in turn, spark a bid from AT&T, once Vodafone is free of the complication of a US arm. But the entry of the US operator, increasingly widely expected ‘ whether it comes in via Vodafone or another purchase ‘ is prompting reactions already from the other large European carriers. Some are holding off on planned asset sales until AT&T’s plans become clearer, say sources. According to Bloomberg, Deutsche Telekom and Orange have slowed down an initiative to sell their UK joint venture, EE, to wait to see whether AT&T will be interested.
‘It’s a potentially seismic event, the first real entry of a major international telco into the European space,’ Paul Marsch, an analyst at Berenberg Bank, told the news service. ‘Other industry players would be expecting, given AT&T’s rhetoric, that they would be trying to accelerate capital expenditure and see more aggressively the kind of tariff structures you’ve seen in the US.’
AT&T, in other words, could disrupt European pricing structures in a way that would make Free’s impact on the French space look trivial. And the major incumbents will be making contingency plans ‘ if they do not have assets they wish to sell to a US buyer, they will be building up their own market shares as quickly as they can to defend their territories. Orange CEO Stephane Richard said last week that he aimed to make deals and acquisitions of his own, consolidating the operator’s position in Poland and Spain, and possibly hunting fixed line acquisitions in Belgium and Romania.
Another deal which is currently in the works could be another catalyst for further M&A and new price wars. Telefonica and KPN are looking to combine their German arms, O2 and E-Plus, which would create the largest cellco in Europe’s largest market. ‘If Germany accepts to go from four carriers to three, it will create an earthquake in Europe,’ Richard told reporters at an event in Paris. ‘It will force other countries to reconsider their positions on consolidation.’
One of the most controversial elements of Kroes’ new package of telecoms reform proposals, the eventual ban on premium fees for roaming services, is also cited as a move that will force carriers to consolidate, or take radical new approaches to pricing. The debates about roaming charges really do highlight the coming clash between the old world and the new, with the former telco monopolies still clinging to their comfortable pricing structures even as nimbler rivals come up with tariff strategies that can be profitable without roaming fees or other relics. Free showed the way in France, and to some extent 3UK ‘ a carrier with a blank slate plus experience of the very different regimes of the US market would turn that shake-up into Richard’s predicted earthquake.
In this context, it is right to question why European 4G and broadband services are not leading the world ‘ the US, Japan and Korea now account for 88% of 4G subscriptions, according to the GSMA, the EU for 6%. But to question it within the narrow vision of how to prop up, or wake up, European players is an approach that will lead nowhere. An injection of cash and expertise from those countries which have made a success of 4G so far is to be welcomed not feared, except by incumbents which are too slow to change. Most of us believe Softbank of Japan will be a good influence on the US telecoms scene now it owns the majority of Sprint, and the weeping of ‘little US’ thinkers lamenting the rise of foreign ownership is generally dismissed. There is no reason to take a different line in Europe. The right deals may shake up a sector which has lost its grip partly down to economic circumstances ‘ which foreign investment could help ‘ and partly because of its own complacency.
Huawei invests in Europe:
Huawei says it doubled its investment in R&D in Europe between 2010 and 2013, and expects to double the figure again over the next five years. Virtually excluded from major US infrastructure deals, Europe is vital to the Chinese giant’s prospects of expanding in the established mobile markets, and of stealing share from Ericsson, NSN and Alcatel-Lucent, which are incumbent in the EU region.
“Huawei is committed to reinvesting a minimum of 10% of revenue in research and development every year,” said Renato Lombardi, VP of the company’s European Research Centre. “In 2012, we re-invested over 13% of our global revenue in R&D, one of the largest single commitments to R&D in the ICT industry by a private company. Our investment in R&D in Europe also continues to grow.” The firm has 13 R&D locations across Europe, in Sweden, Finland, the UK, France, Germany, Belgium, Ireland and Italy, and these employ over 800 researchers.
Recent European wins for Huawei include a deal to replace Ericsson at TDC in Denmark, as it moves to LTE; and a VoLTE contract with Russia’s Yota, now part of MegaFon.
Last month the European Commission rejected claims that it was delaying an investigation into the business practices of Huawei and ZTE until after China Mobile’s huge TD-LTE networks tender, in which the European vendors are bidding, was completed. The Commission said in a statement that it was ‘ready to launch an anti-dumping and an anti-subsidy investigation concerning imports of mobile telecoms networks from China, but seeks a negotiated solution in this case.”
Consolidation in India:
Europe may be braced for a wave of M&A, but a market which desperately needs consolidation to make may operators viable is India. Outside players which have Indian subsidiaries, including Vodafone and Singapore’s SingTel, are determined to take advantage of the wave when it comes, and the government’s planned relaxation of rules on foreign investment in Indian telcos.
SingTel chairman Simon Israel said this week that India ‘desperate’ needs mergers and indicated he was prepared to inject new funding to ensure its Indian associate, Bharti Airtel, benefited. The Singapore firm has a 32% stake in the largest Indian cellco. “India desperately needs consolidation. Globally, the mobile industry is a scale game,” said Israel. The huge country has more than 10 carriers and the GSM-only operators struggle with ultra-low ARPUs and too much competition. Israel thinks five or six would be the maximum number of carriers nationally, with only three or four in certain regions.
A few days earlier, Vodafone India’s CEO Martin Pieters said his firm saw itself as a “natural consolidator” in the domestic market, as the industry waits for the government’s new M&A rules, to be announced next month. These should allow foreign telcos to own 100% of Indian operators. Pieters said: “Vodafone is a natural consolidator in the market. We are only in telecoms. We believe in scale, and we are financially strong.’