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  4. > Mobile Network Consolidation in Europe : European Union’s Single Telecom Agenda will Promote Consolidation

Executive Summary

Over the years, the mobile network services market in the United States has undergone considerable consolidation and is currently led by major providers: AT&T and Verizon. In comparison, the European market consists of numerous regional operators, creating a fragmented competitor landscape.
European network providers are entering a phase of mergers and acquisitions (M&A) to overcome the competitive challenges posed by a highly fragmented market, such as price erosion and limited resources for future investment. M&As are regulated by the European Commission’s telecom authorities to ensure the evolving competitive landscape does not negatively affect consumer interest. Regulators must avoid unacceptable concentrations of market power, and they must ensure operators are strong enough to invest in the infrastructure necessary for Europe’s economic growth. The recent shift to allow some markets to consolidate appears to recognise that mobile operators must be more robust. These operators must ensure customers have access to reliable 4G services, and they must withstand intensifying pressure from over-the-top (OTT) digital natives, primarily Google and Facebook.

Case for Mobile Network Consolidation

Consolidation in the European mobile network services market has been spurred on because of the following reasons:
• Eroding Prices
Many major European markets still have x mobile network operators (MNO), with mobile virtual network operators (MVNO) accounting for varying proportions of the national subscriber base. The onset of the economic crisis pressurised the oligopolistic setup, leading to price erosion that decreased mobile operator service revenue growth by an estimated x % in 2011.

Moreover, in 2014, the European Commission introduced price caps that reduced roaming costs in Europe, which further adds to the revenue woes of operators. Frost & Sullivan estimates that the aggregate average revenue per user (ARPU) has steadily decreased from € in 2009 to € in 2014.
In 2014, the French government announced its support for consolidation in the market, which had become unstable after the aggressive pricing strategy of Free Mobile. Following its entrance to the French MNO market, Free Mobile introduced SIM only deals that fuelled price competition in the market. This strategy sounded warning bells among French operators to deal with falling operator revenues and subsequent job cuts. Additionally, contracting revenues discourages next-generation investment, delaying development of new technologies, which is one reason why Europe has been a laggard in long-term evolution (LTE) roll out, compared to more consolidated markets such as North America.
• Cross-border Consolidation
In addition to strengthening the acquirer’s position in local markets, M&A helps consolidate financial assets for investment in neighbouring regions.

Quad-play Strategy

To increase customer loyalty, operators are developing a quad-play strategy that offers fixed-line voice and Internet, mobile, and TV services. With this strategy, operators aim to reduce customer churn and increase revenues. Consumers stand to benefit from accessing all services from a single provider at better rates, with increased flexibility such as transferring unused minutes from mobile to landline.

A successful example of quad-play offerings is Telefónica’s Movistar Fusion TV in Spain, which makes mobile, landline, broadband Internet, and TV available on all screens. This offering provides voice and Internet to customers and a choice of x packages on content: For All, Football, and Energy. Movistar Fusion has improved the downward trend exhibited by Telefónica’s sales revenue year-over-year (YOY) growth from negative x % in 2013 to negative x % in 2014. The success of Movistar Fusion is evidenced by its increased coverage across a larger proportion of broadband ( x %) and mobile customers ( x %), along with a robust x % YOY growth in Pay-TV access.
Quad-play strategies will result in a convergence in the fixed and mobile market, promoting multi-play operators and relegating single-service operators to the fringe, making them ideal acquisition targets.

Table Of Contents

Mobile Network Consolidation in Europe : European Union’s Single Telecom Agenda will Promote Consolidation
Executive Summary 3
Case for Mobile Network Consolidation 3
Network Sharing as an Alternative to MandA 6
The Operator Trend of 3 is a Charm 6
The Role of Regulation 7
2015 MandA Outlook for Western European Markets 9
The Last Word 11
Legal Disclaimer 12
The Frost and Sullivan Story 13

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