Europe shifts on priorities for telecommunication companies

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London | Published: November 4, 2014 5:08:55 PM

Poor cellphone and Internet service is a fact of life in many parts of Europe.

Less than a quarter of Europeans can connect to high-speed cellphone networks, compared with about 90%of Americans. And broadband connections are often painstakingly sluggish.

But the prices here for these services are among the lowest in the world. Europeans spend an average of $38 for a monthly cellphone contract, about half of what Americans pay on average, according to the Groupe Speciale Mobile Association, an industry group.

Now, though, the region’s top policy makers are set to change that, giving investment and costlier services higher priorities than affordability and antitrust worries.
The details of their plans are expected take shape now that a new European Commission, the executive arm of the European Union, began its five-year term on Saturday. An outline is already forming, accompanied by a frenzy of deal making.

The commission’s new digital chiefs recently expressed support for plans that would loosen the region’s strict rules on telecom mergers.

Several national politicians, including Chancellor Angela Merkel of Germany, are also willing to see bigger telecom operators — many of which are former state monopolies — pick off smaller, less-profitable rivals.

“We need to create a less fragmented market and incentivize private companies to make the necessary investments,” Andrus Ansip, Europe’s new vice president for the digital single market, told European lawmakers last month.

Those changes would be a major victory for the large telecommunications companies in Europe, which have long argued that the industry should be focused around larger players that can recoup investments when upgrading mobile and fixed-line networks.

European companies have announced $85 billion in deals so far this year, more than double the amount announced in all of 2012, according to the media and data company Thomson Reuters.

Some carriers have looked to buy rivals in some of the region’s biggest countries. That includes Telefónica, a Spanish carrier, which acquired its German competitor E-Plus for $10.7 billion. Others have added services to existing businesses, like Orange, the former French telecom monopoly, which has offered to buy the Spanish cable operator Jazztel for $4.3 billion to expand its high-speed broadband network.

And European telecom giants like Vodafone of Britain, which pocketed $130 billion this year in selling its 45 percent stake in Verizon Wireless, have unveiled multibillion-dollar investment plans to improve cellphone and broadband coverage.

“If you want to attract investors, you need to ensure returns on investments,” said Gervais  Pellissier, deputy chief executive at Orange. “Things have started to change in that direction.”

Consumer groups, though, have warned that greater consolidation will increase cellphone and broadband prices. As the carriers become larger and increasingly sign exclusive deals with the likes of Netflix and Spotify, the groups say, the carriers will also gain greater control over what content people can obtain on their mobile devices.

“Concentration in the telecom market gives space for business models that limit online freedom,” said Jérémie Zimmermann, co-founder of La Quadrature de Net, a consumer advocacy group based in Paris.

Consumer pressure has led to several laws aimed at making it easier to send text messages, make calls and surf the web across Europe. Local policy makers are phasing out the costly roaming charges that are common for people using their cellphones in other European countries. And lawmakers recently passed legislation that forbids companies from charging extra for improved access to their high-speed networks.

The steps have taken a toll on Europe’s carriers, which reported a collective 7 percent drop in revenue last year, to $208 billion, compared with a combined 3% increase for American companies.

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