The battle for KPN’s German business is the latest wave in a flood of mergers and acquisitions in the European telecom sector. According to Dealogic, telecom was the most active sector for European M&A during the first half of the year, representing 18% of deal volume in the region. Telecom M&A in Europe is at its highest level since 2003, and observers expect it to pick up even more steam if regulators approve the deals that are currently on the table.
“A rising tide of deal making in Europe’s troubled telecom sector is spurring more companies to dip their toes in the water, raising hopes for a long-awaited wave of consolidation,” according to Rutberg & Company. The firm says deals are motivated by low interest rates, possible regulatory changes, and executives who fear their companies will be left behind if they do not act.
Not all the merger activity is about new mobile markets; some players are looking at adjacent industries as opportunities to expand. Vodafone Group, the world’s second largest mobile operator, recently bid $10 billion in cash for Kabel Deautschland, Germany’s largest cable company.
Rutberg believes that mature, capital-intensive mobile markets in Europe can support 2-3 primary competitors, whereas most European countries have four competitors. Furthermore, the firm thinks that the investments required to upgrade networks require at least a 20% market share. Therefore, “regulators appear to be increasingly aware of infrastructure investment requirements and to be gradually more open to in-market transactions,” the firm says.
