The proposed takeover of UK mobile leader by EE by incumbent BT – if approved – will certainly not be the end of the chapter. Instead, it is likely to spark further M&A in the UK and Europe, and indeed globally. Companies like Orange, one of EE’s parents, today have to plan their acquisitions and divestments on a global basis, not national or regional, as they seek to balance investments in growth markets with consolidation in larger, but more pressurized, countries.
France Telecom/Orange CEO Stephane Richard has been active in stirring the M&A pot, calling for consolidation in France and Europe and revising priorities in Africa – where the French firm is one of the most active players. In 2013, he predicted an “M&A earthquake” in Europe if the merger of Germany’s O2 and E-Plus were approved, since it set the precedent of a regulatory permitting a reduction in the number of mobile operators in a market.
That deal was approved (with conditions), and Richard was quickly urging his smaller rivals in France to initiate consolidation and return the country to having three, not four operators. This would slow the escalating price wars sparked by the entry of the fourth cellco, Free Mobile, he argued, though he said Orange, as the largest operator, was not best placed to initiate mergers.
However, he now says that, if he succeeds in selling most of FT’s stake in EE – which it shares equally with Deutsche Telekom – he may invest some of the spoils in further acquisitions in the home market, as well as in Africa. “There’s a natural pressure towards consolidation in the sector,” he told a press conference this week.
Orange is under increased pressure, since Altice is acquiring second cellco, SFR, and will create a quad play platform by merging it with its cable outfit, Numericable. That will make SFR a stronger competitor to Orange, and may push it towards renewing talks with third MNO Bouygues Telecom. Bouygues talks last year, with SFR, Iliad and reportedly Orange, all failed but the company is badly in need of improved scale and wireline capabilities in the face of three quad players – Orange, Altice and Iliad. Iliad chairman Xavier Niel said last November that he was not planning further acquisitions in France.
Orange is also reviewing its operations in Africa, where it aims to enter, or increase investment in, markets where it can be a top two player, but to pull away from those where it has a minor share. It is set to exit Kenya, for instance, following the acquisition of yuMobile by the two largest cellcos, Safaricom and Indian-owned Airtel. The Kenyan government, which owns 30% of Telkom Kenya, is now looking for a buyer for the rest, which is held by Orange. Orange also sold its operations in neighboring Uganda last year.
As for the UK, if FT and DT pull out (except for retaining a small stake each in BT/EE), the pattern of ownership will shift from European majors to wireline operators. Telefonica is also said to be keen to sell its O2 UK operation – it failed to attract BT to that deal but could still woo Hutchison (owner of Three), or one of the broadband operators which still lacks its own mobile network (Liberty’s Virgin Media, BSkyB or TalkTalk).