Is a New Wave of Telco Mergers in Europe About to Begin?

June 15, 2012
By: Gary Kim

How big will a service provider have to be in the European market to survive and thrive in the next phase of telecom industry evolution? It's a logical question now that Latin American mobile operator, America Movil has acquired a 21 percent stake in Telekom Austria (News - Alert), a move that is not expected to be the last such move by America Movil, to say nothing of what other firms might ultimately attempt as well.

America Movil will purchase five percent immediately, taking its current stake in Telekom Austria to 6.7 percent, and expects to buy the remainder later in 2012.

America Movil already has acquired 8.12 percent of KPN (News - Alert), the Netherlands telecom company, and the latest investment represents the third increase in just a week's time. Those moves are likely to spur additional defensive or offensive moves elsewhere in Europe’s telecom market.

Consider that France Telecom's (News - Alert) CEO, Stephane Richard recently told the telco's annual shareholder meeting that the recent bid by Mexico's America Movil for a substantial holding in The Netherlands' KPN could spark a wider shake-up in the European market.

So how big might a firm have to become, to maintain European leadership? Fairly substantial, it might appear. Between them, Deutsche Telekom (News - Alert) and France Telecom have a combined annual revenue of about 104 billion euros, about US$131 billion.

The other observation might be that if France Telecom believes it is too small, at $46 billion euros, it suggests all other firms smaller than that might have to rethink their options as well. To be sure, consolidation in the telecom industry is nothing new. It has been a part of the U.S. industry for over 100 years, in virtually every segment of the business.

But it appears a new round of consolidation is about to begin in Europe.

Edited by Brooke Neuman

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