OXFORD, United Kingdom-As calls grow for the large-scale consolidation of European-based cell-phone operators, at the top of many financial analysts’ list is U.K.-based MmO2. While the company recently announced better-than-expected first-half growth figures, the mobile operator is being increasingly viewed as not being able to generate sufficient revenues to ensure its long-term survival.
While O2 would have appeared to have made a turnaround with regard to its financial fortunes, those skilled at the black art of digging into quarterly reports claim that MmO2’s bottom-line improvement was achieved by the simple but savage cut-back in capital expenditure, a policy it will not be able to sustain as it must upgrade its networks to support third-generation (3G) services. The situation is not helped by the likelihood of the U.K. Competition Commission ordering big cuts by all U.K.-based operators to lower the cost of calls from fixed-line phones to mobiles.
Separately, the company has acknowledged that the sale or merger of its Dutch subsidiary might be the correct answer as it struggles to stay alive within an overcrowded market. The unit lost 9 million euro (US$8.9 million) during the past six months and is reported to be requesting additional monies to fix well-documented coverage holes within its existing network.
In related news, Conflicting reports have emerged over the likelihood of a merger of the German mobile assets of MmO2 and KPN.
Rumors that KPN is discussing a merger of its German mobile operations with those of MmO2 in the same country are wide of the mark, according to a report in Dutch newspaper Het Financieele Dagblad, quoting an anonymous KPN spokesperson.
However, the Financial Times has suggested the two companies had talked about the possibility of pooling their resources in Europe’s largest mobile market only for serious differences to emerge over the value of the existing businesses.
KPN provides services to about one-eighth of all German mobile customers through E-Plus Mobilfunk, while MmO2 has a significantly smaller market share. While the financial markets support a merger as the best chance for both companies to survive long term, this disparity in market share will ensure any negotiations are long and complicated.
