"Vision, courage and time!". The words that the European Commissioner for the Internal Market, Thierry Breton, spoke on Wednesday during the presentation of the results of the public consultation on the future of the electronic communications sector and infrastructures sounded like heavenly music in the business world.
The pressure that the big operators in the sector have been exerting for years is bearing fruit. "This is the only deflationary sector. Every time we give more for less money", José María Álvarez-Pallete, executive chairman of Telefónica, regularly complains. While in the USA and China, with millions more inhabitants, there are only three large telephone operators, in Europe in general and in Spain in particular the competition is ruthless between more than a hundred. A reality fostered by EU competition laws that has severely punished companies' profit and loss accounts. "The value of the shares of the European operators is in multiples so low due to the competitive dynamics of the market", confirms Javier Arenzana, partner responsible for the telecommunications sector of KPMG.
This reality could have its days numbered after the events of the last few months. On the one hand, it is the dance of seats at the command of Brussels. The indestructible Commissioner for Competition, the Danish Margrethe Vestager, who has always defended the existence of many operators, has taken a break from her duties to defend her candidacy for the management of the European Investment Bank (EIB). A break that his colleague Thierry Breton and the telcos have taken advantage of. During his time in the private sector, Breton served, among other positions, as president and director of France Telecom, president of Orange and president of Bouygues Telecom. It therefore has a direct line with the sensitivities of the large European operators, fed up with financing the deployment of infrastructure for years so that later it is the virtual operators and internet giants such as Google, Meta or Amazon who devalue the price of services and take away the favor of the markets and other benefits.
The challenge of deploying the new 5G technology exacerbates this situation. The report presented on Wednesday by Breton ensures that 50% of the annual income of the major European operators over the next five years will have to be allocated to "meet the investment needs in connectivity infrastructure and the replacement of service providers high risk". At the same time, a single European 5G base would generate between 200 and 300 million profits and Brussels could maintain control of a strategic sector.
With a geopolitical context in maximum tension and the business movements of recent months, with international funds threatening European telecoms, the ground is ripe for change. "Now there may be a little more tolerance for moving from four to three or two operators in some countries", acknowledges Arenzana.
In this scenario, Spain is a key country. It was since July 2022, when Orange (second operator in Spain) announced its merger with MásMóvil (fourth operator). Since then, all eyes have been on the European competition authorities. The future of mergers in the rest of the continent depends on their decision. Vestager was not prepared to allow this operation and, in case of doing so, she wanted to demand strong concessions. But now, with his interests in another place, the scene changes", explain sources in the sector. The countdown clock to find out the outcome of this operation is running out.
If Orange achieves its goal, it will be understood as the starting point for mergers in other countries. Even more, Breton advocated on Wednesday for transnational mergers. The need is pressing. Much more so after the scare caused by the surprise entry of the Saudi Telecom fund into Telefónica, at the beginning of September. Only the current Antiopes law has stopped him from becoming a majority shareholder of a strategic company. Can Brussels allow international sovereign wealth funds to monitor its communications? The telcos have been warning about this risk for years, which is now a reality. Telefónica's problems are no exception. Also in Spain, there is the case of Vodafone. According to sources in the sector, Zegona, the British fund interested in its Spanish division, could be thinking of splitting the company to take advantage of its most profitable divisions.
Brussels must play a match ball. Defend competition or design a single market strategy with multinationals shielded from foreign capital and able to compete.
