The words of the new CEO of the Vodafone Group, Margherita Della Valle, last Tuesday during the presentation of the company's results, shed light and stenographers on some movements that have been cooking for months in the Spanish telecommunications market.
The British operator confirmed that it is not closed to sell its business in Spain. Few in the sector trust that an operation of this magnitude, the sale of the entire business, is possible. There is no doubt that Della Valle's words are a warning for all those (competitors and investment funds) who have been interested in various assets in recent months to put their latest offers on the table.
Among those known, a possible offer from the Apollo fund for the business for 4,000 million or the one launched by the CEO of Telefónica, Ángel Vilá, during the results presentation conference with analysts, in which he expressed his willingness to share the network fiber in Spain with the British operator.
"Vodafone will not have an easy time selling assets at an adequate price to clean up its business in Spain," the sources consulted point out. The moment is complicated. After years of price wars, the big operators seek to turn that battle around and channel a business model that stops eroding profit margins like the one they have been enduring in the last decade.
To do this, the big four, Telefónica, Orange, Vodafone and MásMóvil, took advantage of the general escalation of prices in the country driven by the war and energy costs to join the price increases. For the first time in years, they ventured higher than 6%, and some of the smaller ones followed. Digi did not, the fourth operator to rise like foam its share in a market like the Spanish one that is very sensitive to price and very affected by inflation.
While the move has gone relatively well for Telefónica, Orange and MásMóvil, the same has not happened with Vodafone, which has lost 121,000 broadband customers and 56,000 on television in the last year.
Another point that complicates Vodafone's intentions is the strategic merger between Orange and MásMóvil, the second and fourth operator in the Spanish market respectively, which together would become the first. The merger is in the crosshairs of all European operators.
The decision taken by the European competition authorities, which are now reviewing it, may mark a turning point in the market. Traditionally, the policy applied by Commissioner Margrethe Vestager has always been to favor the largest possible number of operators in the market.
For this, a merger of these characteristics would only be approved with very demanding conditions (remedies in the jargon of the sector). Conditions that go through, for example, the obligation to sell assets at very competitive prices that smaller operators buy. This policy was the basis for the growth of MásMóvil when it was able to acquire Amena's network at low prices when it was bought by Orange in 2015.
Currently, the average profitability of the operators is below the cost of capital, which means that they have been reluctant to invest in networks and European investments in 5G lag behind those in Asia and the United States, says Goldman Sachs in one of his reports.
If there are mergers with great conditions, there will be no investments, which is the argument with which the big ones want to condition the merger. The Competition decision on the merger of Orange and MásMóvil is not only eagerly awaited in Spain, it is also key for Europe.
"If the go-ahead is given without strong conditions, it could go from markets with four operators to markets with three and that has a direct impact on the profitability of the companies," sources consulted explain.
In Goldman Sachs they are optimistic, in their reports they trust that Europe will change its strategy in the face of the investment delay that is already observed in the continent in 5G technology. At stake are investments close to 200,000 million, which are the ones that have to be invested in Europe to develop the necessary infrastructure to support the development of 5G.
But not everyone is as clear as the big investment bank. Given the doubts, the investment funds in the sector that had closed a good number of operations in Spain in the last two years, such as the purchase of Red Eléctrica assets by KKR or the agreements between Digi and Abrdnd, among others, have put on the brake “They have been paralyzed. They want to make sure of how the final map will look in order to take positions again at a time of rising rates like the current one”, say the experts.
Avatel and Finetwork, the two companies that are fighting for fifth position in the Spanish sector, have suffered from the indecision of international capital that has stopped a purchase operation with the first and the entry of capital into the second.
“There are too many conditions in the sector. But what is clear is that the fight for low prices in recent years, at least as it has been up to now, is history”, the companies point out.
