Need for convergence driving European telecoms M&A

The European telecoms industry is undergoing high levels of strategic and structural mergers and acquisitions (M&A), primarily due to increasing competitive challenges, convergence and investment requirements, according to a ratings agency analyst.

Roelof Steenekamp, director at Fitch Ratings, said market fundamentals continue to put pressure on telecoms players to find what he described as "in-market M&A solutions" from a technological and financial standpoint.

"The trend is likely to continue as macroeconomic, competitive and regulatory disruptions drive down revenue and profitability, especially for incumbent operators. The greater these disruptions in 2014, the more likely it is that further market consolidation will occur," he told CIO UK.

Following the acquisition of Kabel Deutschland by Vodafone, one of the next deals could be between the cable company Numericable and the mobile operator SFR, Steenekamp says. The proposed share floatation of SFR by Vivendi in 2014 and an already listed Numericable could make a transaction easier.

"We believe acquisitions of cable operators by mobile operators are more likely, driven by lower barriers in the form of less onerous anti-trust bodies’ approval requirements and the fact that large cross-border incumbent or mobile M&A may face greater political and regulatory scrutiny. The convergence between fixed and mobile offerings supports further this in-market M&A."

Furthermore, even if technology and regulatory issues are momentarily ignored, Steenekamp says relatively low valuation European companies will be another driver for M&A activity.

"Some international telecoms players could target Europe to pursue their geographical expansion at a lower price," he added.

Copyright © 2014 IDG Communications, Inc.

Security vs. innovation: IT's trickiest balancing act