Brussels open to telecoms mergers to support investment

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Brussels has signalled it is open to European telecoms mergers to help fund the rollout of 5G and update ageing networks, in what is likely to be seen as a softening of approach after regulators quashed several potential deals in recent years.

Europe’s biggest telecoms groups have been calling on the European Commission to help them invest billions in the rollout of 5G and full-fibre networks, including through in-market consolidation and demanding that Big Tech groups pay a “fair” contribution for using their networks.

According to a draft white paper seen by the Financial Times, the commission found that “fragmentation [of the sector] could impact the ability of operators to reach the scale needed to invest in the networks of the future, in particular in view of cross-border services”.

The regulator said it recognised that while a competitive telecoms market was a benefit to consumers, “industrial competitiveness and economic security” should be taken into account when looking at sector consolidation.

The highly anticipated report on digital infrastructure, which will set out Brussels’ thinking on how to build resilient digital networks, is expected to be published next week and is under review by the EU executive.

While its recommendations will not be legally binding, telecoms operators said Brussels’ comments signalled it was willing to consider more mergers in the sector to bridge a funding gap. It comes after the commission said last year that it had been told by telecoms groups they would need to spend up to 50 per cent of their annual revenues over the next five years to invest in areas such as infrastructure.

“Creating a true single market for telecommunications services requires a reflection on encouraging cross-border consolidation,” Thierry Breton, the EU’s commissioner responsible for the single market, told the FT.

“Scale is key to deliver on the massive investments needed to build the cutting-edge digital infrastructure Europe needs for its competitiveness. Too many regulatory barriers to a true telecoms single market still exist,” he added.

People with knowledge of the EU’s thinking said the paper would reignite the debate about telecoms consolidation after years of concern about tie-ups leading to rising prices for consumers. Brussels has previously blocked big deals including CK Hutchison’s £10.5bn attempt to buy O2 in 2016.

The commission is preparing to announce its decision on whether the proposed €18.6bn Orange and MasMovil joint venture in Spain can go ahead, as early as next week. The case has been closely followed by the industry as a test case for further consolidation in the bloc. 

Europe’s biggest telecoms groups have also called on the EU to compel Big Tech to pay a “fair” contribution for using their networks. The chief executives of 20 companies including BT and Deutsche Telekom last year signed a letter to be sent to the commission and members of the European parliament about the initiative.

In the draft paper, Brussels said it might need to act to ensure that all players, including large technology companies, paid for the use of the infrastructure they use, “to ensure a regulatory level playing field and equivalent rights and obligations for all actors”. 

Submarine connectivity and cables also posed a “challenge to EU resilience”, the commission said in the draft paper.

It added that incidents such as in the Baltic Sea — appearing to reference a leak in a gas pipeline and a break in a data cable between Finland and Estonia in 2022 — demonstrated the bloc’s vulnerability.

From October, a new directive will require member states to adopt policies related to the cyber security of infrastructure such as submarine cables and to ensure the protection of “vital security interests” from sabotage and espionage, according to the draft.

The “NIS 2” directive is also set to apply to other entities that may also operate submarine cables such as cloud or data centre services providers.

The paper added that studies carried out by the commission found the EU was lacking accurate mapping of existing infrastructures, common governance of cable technologies and cable-laying services as well as ensuring the “rapid and secure” repair and maintenance of cables.

It said the commission may also “consider an equity instrument designed to support” cable projects of European interest.