Indian conglomerate Reliance Industries (RIL) is said to be close to making a bid, worth about $5.7bn, for T-Mobile Netherlands. If successful, buying the unit would give RIL’s disruptive mobile and digital services arm, Reliance Jio, its first foothold in Europe.
This could send shivers down some MNO spines in the region. Of course, The Netherlands is a small market and a very different one from India, so it would be unlikely that Jio could replicate the approach or the success it has had in its home country. However, this could be just a first step towards building a larger European base and seeking to harness open architectures, digital services and elastic pricing to challenge the established players.
Operating companies are likely to come up for sale in various markets over the next few years as telecoms groups look to higher growth regions, and seek to exit countries where they have limited market share or profitability. In the past, consolidation has sometimes been slowed down by regulatory hostility to deals that reduce the number of MNOs in a market (as in the UK, where an O2/Three merger was rejected), but acquisitions by an external player would not raise this concern.
French telecoms group Iliad has shown how it is possible to disrupt incumbents and seize market share even in western Europe’s saturated and competitive markets. It did this most spectacularly in France with the launch of Free Mobile, but is also achieving some success in Italy. Now another broadband provider, Drillisch, is trying to emulate Iliad in Germany, where it has launched an MNO called 1&1. In an earlier era, Hutchison entered Europe from Hong Kong with a string of launches under the ‘Three’ banner and has become a challenger operator in six countries in the region.
These disruptors had certain elements in common, notably the use of the most modern, legacy-free architectures to reduce cost and maximize agility, enabling the operators to undercut incumbents on price and then, having gained market share that way, to add new layers of services, content and marketing differentiation.
Jio, coming from the toughest market on earth in terms of ARPU and margins, knows all about this process. It could import the cloud-based, open network platform that it is developing and apply it to TMO NL and other acquisitions, while also turning the DT subsidiary into a digital services provider, modelled on the Jio template at home.
A foothold in Europe, even just in The Netherlands, also gives Jio, and its parent division Jio Platforms, an enhanced ability to influence pan-European technology developments, whether standards work within ETSI, or working with the burgeoning European Open RAN community. It would be able to extend its work on Open RAN and 5G architectures to target other operators in Europe, and even to emulate Rakuten by selling its platform and services to MNOs. Given the European Union’s eagerness to stimulate a homegrown ecosystem, that would be easier from a base within the region.
First, RIL has to line up the investors to back its bid, which was first reported in early August by Indian business newspapers. The Hindustan Times reports that the deal is being personally run by Akash Ambani, Jio’s leader and son of RIL chairman Mukesh Ambani. It would look to buy the 75% stake that Deutsche Telekom owns, and probably the 25% that is held by Sweden’s Tele2. The latter would not be essential, if Tele2 were unwilling, but DT is thought to be keen to sell its majority stake and it was reported, in July, to have appointed Morgan Stanley to look for potential buyers, mainly in the private equity field.
According to DT’s Capital Markets Day in May, its Dutch arm has recently outperformed the other Dutch operators, KPN and Vodafone NL, achieving the fastest service revenue CAGR between 2018 and 2020, and reporting a fifth consecutive year of EBITDA growth to reach €554mn ($657m) in 2020. DT said the unit was a “crown jewel”, but now seems eager to exit The Netherlands after 20 years, and free up funds for 5G expansion in larger markets, and to reduce debt.