Fitch: Pan-EU Telco Infrastructure Talks Are Unlikely to Succeed
Published on: 10th Jan 2013
Note -- this news article is more than a year old.
By: Ian Mansfield
Reported discussions about the creation of a pan European telecom infrastructure network are highly unlikely to succeed due to technical challenges and likely opposition from domestic regulators Fitch Ratings says.
Recent talks between operators and the European Commission could signal a slight softening of regulatory opposition to consolidation in the sector, but the ratings agency believes that network sharing within individual countries will remain a more common method of cutting costs and defending margins.
The pooling of Europe's telecoms infrastructure would require agreement from all or nearly all of the continent's major operators to be worthwhile. But the benefits of a deal would vary widely between companies depending on their existing market share and such things as spectrum holdings, making a workable agreement hard to negotiate. Even if companies and local regulators reached a deal in principle, technical hurdles would be high and practical issues including language barriers would also create difficulties.
The European Commission's reported support for such reform could indicate it will soften its stance on regulatory issues. However, consolidation within EU states is where progress would be most helpful for operators by reducing cut-throat competition and generating capital and operating expenditure savings. Local regulators are likely to remain opposed to M&A activity because of the impact on competition, while the biggest incumbents will also oppose anything that creates new, more efficient, competitors.
In this environment, Fitch said that it expects to see more network-sharing deals along the lines of Vodafone and Telefonica in the UK. Sharing infrastructure through these agreements can create significant opex and capex savings. Regulators are less likely to object and the agreements will face fewer technical challenges through being in the same geographic market. But they will still only make sense for operators that are broadly similar in size.
Expectations for more network sharing deals are already considered in Fitch's outlook for the sector. The ratings agency said that it would expect weaker free cash flow generation without them.
Tags: fitch ratings