Telecoms providers seek X-factor appeal through consolidation

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BT faces some harsh historical lessons after EE takeover

C

ommunications industry executives were grooving at the final of The X Factor just before Christmas, even as telecoms group BT finalised a £12.5bn takeover of mobile operator EE. Singer Ben Haenow triumphed at the televised pop talent show and risked a winner’s curse. Talented losers — this year it was Fleur East, Walthamstow’s answer to Beyoncé — often do better subsequently.

That was a takeaway for executives as they headed to the afterparty, muttering that Mr Haenow might soon be referred to as “Ben Backthen”. For them, short-term victory in value-destroying auctions could presage long-term defeat.

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The lesson is particularly relevant for BT, the country’s dominant fixed-line telecoms group. Its agreement to purchase EE, which is owned by Deutsche Telekom and France’s Orange, was confirmed the following day. The agreement is cited as proof that consolidation is afoot in the UK’s fragmented telecoms industry and its hinterland. One purported driver is the necessity for companies to offer customers a “quadplay” service — fixed lines, TV, internet broadband and mobile telephony in one package.

Gavin Patterson, the BT chief executive whose Byronic good looks excite some interviewers more than his managerial credentials, has taken the former state monopoly into TV with expensive purchases of football rights. Buying EE ticks the fourth box on his quadplay shopping list.

The price in cash and shares is more than £1bn ahead of initial guesstimates. Deutsche Bank termed as “hefty” a 7.9 times multiple of trailing earnings before tax and other deductions. Claims that Mr Patterson kept a lid on EE’s price by discussing an alternative bid for O2, another UK mobile operator, thus appear exaggerated.

The idea that wider consolidation is justified by technological convergence is also suspect. James Barford of Enders Analysis, a media consultancy, says: “There is not a lot of evidence of consumer demand for quadplay, or even for fixed-line telephony and mobile together. So far, successful offers have been driven by price discounts.”

A cynic might therefore define quadplay not by its technologies, but as a four-way scrimmage of chief executives, bankers, investors and regulators. The danger is that the fight becomes such fun that some participants no longer care about the final score.

Consolidation is still an alluring prospect for big telecoms groups such as BT and Vodafone, the big UK-based mobile operator. This is partly because their core businesses are stagnating. Underlying sales and profits have had little upward momentum in recent years. Quadplay-driven consolidation offers a chance to make cost savings while improving pricing, hopefully in a way that will not alarm competition watchdogs.

Perennial drivers of consolidation that never appear in presentations to investors are managerial ambition and M&A marketing by bankers. Members of the latter group are gleefully imagining scenarios that might follow in the wake of BT’s purchase of EE. They suggest Vodafone could merge with Liberty Global, the US group that bought UK broadband company Virgin Media for $23.3bn. They also propose that Telefónica of Spain, which owns 02, could combine it with TalkTalk. This value-focused broadband and TV group sponsors the X Factor and is helmed by former Tesco executive Dido Harding.

Other outcomes could include bids from telecoms or cable groups for terrestrial broadcaster ITV, which screens the talent show, and Sky, a rival that distributes programmes by satellite. The value of these businesses lies in such content as ITV’s costume drama Downton Abbey. An external offer for Sky would be complicated by News Corp’s 39 per cent stake, however. The specifics of consolidation can only be guessed at in the UK, as in the rest of the world. The character of the process is predictable. Acquirers would justify prices paid with historic comparisons, or, if these are unsatisfactory, with projections of earnings and cost cuts. Equity analysts would mostly endorse such rationales. But the main transfer of value would be from shareholders in bidding companies to vendors of assets.

It is beyond cliché to observe that those who do not learn from history are condemned to repeat it. That does not stop the axiom from being true. Mr Barford says: “There is always scope to overpay when people are taking big bets on the future.” In telecoms and related businesses, this looks like becoming a habit.

jonathan.guthrie@ft.com

RELATED TOPICS

• United Kingdom,
• Mergers & Acquisitions

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GENERAL

European Commission deregulates fixed line markets

October 10, 2014 Written by Tim Skinner

The European Commission has confirmed that two fixed line markets will no longer be subject to regulation in Europe. The retail market for access to fixed telephony, and the wholesale market for fixed call origination will no longer be affected by price caps.

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European Commission antitrust probe clears ISPs

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The European Commission has announced that an investigation into content delivery antitrust has failed to find evidence of wrong-doing by internet service providers. Inspections were carried out after concerns were raised about the potential abuse of dominant market positions and violation of EU antitrust regulations.

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UK communications regulator Ofcom has announced that Ed Richards, the group’s Chief Executive, will be standing down from his role at the end of 2014. The search for his successor is under way, and is targeted for completion in early 2015, despite Ofcom apparently having had significant advance warning of his departure.

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Tags; EC, European Commission, Price Capping, price caps, Roaming, News & Analysis

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Telefónica acquisition of E-Plus gets conditional all-clear

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Tags; E-Plus, European Commission, Germany, merger, MVNO, News & Analysis, Telefonica

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June 16, 2014 Written by Scott Bicheno

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Vodafone revelations: government snooping “bad for business”

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EU single market package draws closer to approval

March 18, 2014 Written by Dawinderpal Sahota

The European Parliament’s Industry and Research Committee (ITRE) has voted to approve the telecoms single market package proposed by the European Commission. The package, outlined in September 2013, aims to abolish roaming rates within the EU as well as coordinate spectrum assignment across the region. It also calls for consumer rights to be harmonised across Europe, EU-wide protection of net neutrality and simpler rules across the EU to enable companies to invest more and cross borders with their offerings.

Tags; EC, European Commission, Neelie Kroes, Roaming, Europe, News & Analysis, Operator

MEPs call for universal device charger

March 14, 2014 Written by Dawinderpal Sahota

European lawmakers have called for a common charger to be used for all mobile handsets sold in the EU. MEPs said that such that introducing a universal charger would reduce waste, cost and hassle for users. A draft outlining the legislation has been informally agreed with the EU’s Council of Ministers.

Tags; charger, EC, EU, European Commission, Europe, Handsets & Devices, News & Analysis

Smaller European operators oppose EU roaming directive

March 14, 2014 Written by Dawinderpal Sahota

A coalition of 14 European mobile operators has warned of the damaging effects that the European Commission’s plans regarding the abolition of roaming charges could have on competition in the region.

Tags; Bite Latvia, Bite Lithuania, CoopItalia, EC, EI Telecom, EU, European Commission, European Union, FastWeb PosteMobile, Hutchison Whampoa, Intercity Zakelijk, Liberty Global, Omea Telecom/VirginMobile, Roaming, Teleena,Telenet, Transatel, Voiceworks, Europe, News & Analysis, Operator

Merkel, Kroes’ propositions for EU cloud “aren’t contradictory,” says EC

February 17, 2014 Written by Jonathan Brandon

This weekend German Chancellor Angela Merkel called for the creation of a secure European communications network that would avoid US-based networks and servers. But after questions about the compatibility of Neelie Kroes’ proposals to create a well-governed ‘Open Internet’ with Merkel’s calls for an “EU only” infrastructure, the European Commission reiterated support for the German Chancellor’s calls for better security and data protection but declined to comment on how the two proposals would feasibly coexist.

Tags; Chancellor Merkel, European Commission, Germany, Neelie Kroes, Ryan Heath, Networks, News & Analysis,Operator

EC claims operators missing out on 300 million customers due to roaming rates

February 17, 2014 Written by Dawinderpal Sahota

The European Commission has published research that suggests Europe’s mobile operators are missing out on business from 300 million customers by charging roaming premiums within the EU. The research forms part of the EC’s continuing drive to end EU roaming charges.

Tags; EC, EU, European Commission, Neelie Kroes, Roaming, Europe, Networks, News & Analysis, Operator

Orange includes European roaming in high-end contracts

January 30, 2014 Written by Dawinderpal Sahota

French operator group Orange has said it has included roaming services in high-end tariffs for customers travelling across its entire European footprint. The operator has also launched an online portal to enable customers to remotely top up mobile credit for over 350 operators globally.

Tags; Bouyges Telecom, EC, European Commission, France, Content & Applications, Europe, News & Analysis,Operator, Orange

European telecoms reform faces delay

January 23, 2014 Written by Dawinderpal Sahota

Further restrictions on European roaming charges are now likely to be introduced in September or October, rather than July as originally planned. In its initial proposals to reform the EU telecoms market, the European Commission intended to ban incoming call charges for roaming citizens within the region by July 1st 2014.

Tags; EC, EU, European Commission, Europe, News & Analysis, Operator

Telefónica and Orange grow European startups

January 23, 2014 Written by Dawinderpal Sahota

European operator groups Telefónica and Orange have thrown their weight behind a project led by the European Commission to help the region’s technology startups to grow into global internet firms. The EC said it plans to “take on Silicon Valley” with the launch of two initiatives; an acceleration programme called the Startup Europe Partnership and a think tank called the European Digital Forum.

Tags; BBVA, Cambridge University, EC, European Commission, European Digital Forum, European Investment Bank,Humboldt University, IE Business School, Lisbon Council, Mind the Bridge Foundation, Nesta, Startup Europe Partnership,Content & Applications, Europe, News & Analysis, O2, Operator, Orange, Telefonica

European Commission warns Spanish regulator over Telefónica price caps

October 30, 2013 Written by Dawinderpal Sahota

The European Commission has formally asked Spanish regulator CNMC to withdraw or amend its proposal to cap the prices which dominant operator Telefónica can charge rivals that want to sell broadband services on it network.

Tags; EC, European Commission, Spain, Europe, Networks, News & Analysis, Operator, Telefonica

EC seeks to unlock private investment

October 24, 2013 Written by Dawinderpal Sahota

The European Commission has outlined its intention to drive broadband investment across member states by unlocking opportunities for private sector ventures rather than replacing them with its own funding.

Tags; Anna Krzyzanowska, European Commission, Broadband, Europe, News & Analysis

Samsung proposes to end patent wars in Europe

October 18, 2013 Written by Dawinderpal Sahota

Korean handset maker Samsung has offered to call a truce over its ongoing patent disputes with rival handset firms. It has proposed to the European Commission that it will not to seek any injunctions over smartphone and tablet technologies in Europe on the basis of any of its standard essential patents (SEPs) for the next five years.

Tags; European Commission, Joaquín Almunia, Samsung, Apple, Europe, Handsets & Devices, News & Analysis