Wednesday, October 29, 2014

Financial Times: "It's Not Clear That the EC Will simply Allow a Wave of Mergers to Occur"

"There has been much debate in the market about the declining levels of profitability at Euro telecom companies. Declining returns on capital have led to poor investment climates. After nearly a decade of increasing competitive pressure, encouraged by European Commission authorities keen to lower tariffs to consumers, investors sense that the mood has changed. Perhaps the EC would tolerate less competition and more consolidation-type deals if the whole process improved investment trends. Share prices in the sector have held up or even rallied without any clear evidence of strong earnings growth appearing.
But the question needs to be asked:  if roaming charges do fall to zero, what stops a UK customer using a French mobile contract from the UK. That is to say what stops the consolidation from going from, say, three in any country (considered the optimum number, these days), to three throughout Europe. A bit like what exists in the US. Would a surge in cross-border M&A improve the stock market returns of this sector. But would the regulators allow this? Would consumers be happy for the whole market to be controlled by three companies?
One good reason for consolidation, is the EC Competition Commission’s consumer facing mandate. Not a bad thing, necessarily. Consider some data here from Tarifica, who measure all the benefits of mobile packages for consumers against their respective costs. They do this across country borders using a special algorithm which gives weight to the cost of data, voice and SMS
components of any contract, anywhere. See how well France comes out in this small selection of European markets. Note that France has an intensely competitive market, while Switzerland’s incumbent Swisscom has much more control over its pricing. The higher the score the better it is for consumers. "
Here’s the chart:

Above Excerpt Taken From The Financial Times 10/29/2014 Tarifica scores (p6-7)

The above item appeared in a recent issue of The Financial Times, Lex Live. Article by Rochelle Toplensky Oct 29 11:00 2014.

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