The three main telecoms have been losing income for several years and all this is caused by the strong competition that plagues the sector. While in the United States there are three companies that share the entire cake, in Europe there are more than 80 operators competing. In Spain, the situation, far from calming down after the acquisitions of ONO and Jazztel, worsened thanks to the latter’s remedies that allowed MásMóvil to consolidate strongly in fixed broadband. At the same time, other companies such as Digi or Finetwork were able to position themselves in the low cost sector, thus becoming two very relevant players.
Vodafone comes into play
The British operator directed in Spain by Colman Deegan is part of all the puzzles that invite us to think about a merger in the short term, and the fact is that the CEO of the company himself explained a month ago that the market situation is untenable and assumed that we would see a consolidation sooner rather than later.
Vodafone has been losing customers in torrents for years and has a disadvantage important against its rivals; the fiber network. The purchase of ONO in 2014 for 7.2 billion euros allowed it to inherit a cable network with 7 million homes, but the truth is that the expected technological evolution has lagged far behind FTTH (Fiber to the home). Vodafone wanted to distance itself from its competitors that sold ADSL by offering better speeds and thinking about the future, but the reality is that the best decision would have been to deploy fiber on a massive scale as its rivals did.
Another of the problems of the British operator has been the “Lowinization” of its customers losing precisely all the value in those who paid more than 100 euros per premium converged services. The company is currently basing its growth on Lowi while the main brand struggles to retain subscribers looking for cheaper deals from other rivals. The absence of football in its television proposal does not help either and it is that the cost of the rights was too important a slab in the midst of a drop in income. Analyzing the company’s accounts, the last financial year closed with a turnover of 4,166 million euros which is practically similar to the one he had years ago before joining ONO. That is to say, the same income as before spending 7.2 billion to buy the cable company. Along the way we have seen how WhatsApp has killed SMS, European regulation has suppressed roaming or convergence caused an unprecedented price collapse in the sector that together has eroded the income of all telecoms.
MásMóvil and Orange lurking
In any merger process there are always two or three options and in this case it seems clear that any of the two telecoms will be involved. In the case of the yellow operator, the main problem she has is the financial debt which is close to 6,600 million euros and has just invested 3,500 in the acquisition of the Euskaltel Group. In any case, the management of the acquisitions carried out by Meinrad Spenger, CEO of the company, has the support of its shareholders and that could open the doors to the search for financing to carry out the Vodafone purchase operation.
Industry sources estimate at about 8 billion the price of the British operator, which would trigger the debt of MásMóvil above 14,000 million, but would create a giant that would de facto become number two in income and number one in customers ahead of Telefónica. Likewise, the synergies between MásMóvil and Vodafone would allow the company to lower its costs and thus improve all its margins.
In the case of Orange, it seems unlikely that the French operator will undertake such an operation, since the merger with Vodafone would create a giant in Spain bigger than Telefonica that would not be well seen by Brussels. Likewise, the regulator would impose a series of conditions that could be detrimental in the medium term. Looking back, the purchase of Jazztel by Orange forced the operator to allocate assets to its competitors (MásMóvil) and precisely the purchase of these “remedies” led to the creation of a fourth operator that in the medium term has eroded its accounts. If this operation is carried out, Digi would come into play and could be the great beneficiary of a similar situation, something that they know within Orange and that they obviously want to avoid.
Be that as it may, it seems that in 2022 we will see new corporate movements that aim to stabilize telecommunications prices and, above all, prevent the income statements from continuing to bleed. The bad news is that every merger carries an Employment Regulation File (ERE) that can affect hundreds or thousands of workers.