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European telecom firms play down single network idea

Source: Thomson Reuters Foundation - Wed, 9 Jan 2013 14:57 GMT
Author: Reuters
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* Talks with EU about mergers, not single network-sources

* Almunia wants genuine single telecoms market

* Fragmented industry needs investment in faster networks

By Claire Davenport

BRUSSELS, Jan 9 (Reuters) - European telecoms operators want more consolidation in a crowded market, industry sources said on Wednesday, but have not discussed creating a single network for the continent with competition authorities in Brussels.

Telecoms shares rose on Wednesday after the Financial Times reported that leading firms had explored the creation of "a pan-European infrastructure network" to unite fragmented national markets with EU Competition Commissioner Joaquin Almunia.

A spokesman of Almunia confirmed he wanted a "genuine single market" in telecommunications rather than the present patchwork of national companies and subsidiaries.

However, the sources said a meeting of industry officials with Almunia late last year had focused on whether the large number of European operators could be reduced through mergers and takeovers - deals that often run into problems with national and European Union competition authorities.

Sources familiar with the meeting on Nov. 28 said any talk of establishing a single European network was still theoretical. "The talks were centred in consolidation in Europe and in sharing networks, and not in a single market or in a single telecoms network in Europe," said one source.

Telecoms firms need to attract heavy investment in faster networks, something which is difficult in a market with so many players. Many firms are also struggling with diving revenue brought on by new regulations and tough competition from Internet players such as Google and Apple.

More than 1,200 firms offer fixed line services in Europe while over 100 operate mobile phone networks. A further 200 plus offer mobile services by renting space from network operators.

Executives from Deutsche Telekom, France Telecom , Telecom Italia Telefonica, Dutch provider KPN and Belgium's Belgacom attended the meeting with Almunia.

"They discussed competition in the sector in general, in particular the issue of consolidation and how the Commission examines mergers in the sector under the EU merger regulation," said Antoine Colombani, Almunia's spokesman.

Almunia "also expressed the view that it would be desirable to achieve a genuine single market in the sector, as currently these companies operate their various subsidiaries on a national basis", Colombani said in an email reply to Reuters questions.

Operators have been asking the European Commission to allow more national and cross-border consolidation. But Almunia, citing competition concerns, said in December he wanted to explore "network-sharing" rather than allowing more mergers, to make the market more efficient.

Colombani stressed that any network-sharing plans or pooling of resources would have to be an industry initiative, and would be subject to competition scrutiny.

COMPETITION CONCERNS

In addition to consolidation, operators at the November meeting with Almunia also discussed a proposal to regulate fees paid by small telecom firms to rent network space from their bigger rivals, two sources with knowledge of the meeting said.

Network sharing typically refers to mobile networks. Such deals have become more common in Europe's telecom sector in recent years as groups seek to cut costs.

Vodafone and Telefonica's O2 announced in June that they would share a network in Britain to improve coverage and speed up the roll-out of a new superfast mobile service known as 4G. Such deals can include sharing antennas, telecom towers, base stations and the actual network infrastructure.

The STOXX Europe 600 telecoms index was up 1.8 percent on Thursday after the FT report, making it the top sectoral gainer. Deutsche Telekom, France Telecom and Telecom Italia were 2.6 to 5.5 percent higher.

"What the share prices reflect now is a chance that these companies could reduce their costs by building a single network across Europe. However, the chances of that happening are in my view very, very low," John Karidis, analyst at Oriel Securities, said.

Andrea de Vita, an analyst at Italian investment bank Banca Akros, said sharing fixed line networks would be technically difficult, but that other forms of sharing - like jointly buying equipment - could help companies to make savings.

Within the Commission, telecoms chief Neelie Kroes has touted more consolidation to address the lack of investment in high-speed fibre networks, as it could create a handful of strong cross-border telecom leaders that could make those investments.

"Having a few pan-European operators that are strong in the cross-border market would not necessarily be bad for competition," Kroes said last year.

Analysts say a pan-European network is still a long way off and that investors should focus on local markets. "We are doubtful this will happen or that it would solve problems," Morgan Stanley said in a note on Wednesday.

Telecoms operators have been applying for more mergers to expand their services, but some complain that regulatory approval can come with unattractive conditions.

Almunia gave conditional approval to the acquisition of France Telecom's Orange Austria operation by Hong Kong's Hutchison Whampoa Ltd

Terms for approval included Hutchison having to sell radio spectrum and give smaller competitors access to its wholesale network. The deal was seen by some operators as a disappointing test case for more consolidation.

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