Telecom stocks in this decade are great business because they control spectrum frequency and charges people to make calls, serve data and messages to consumers. Since people usually use these services even though its recession or retirement, their cash flow is very defensive.
In Singapore we have 3 telecom operators. Occasionally there are heavy competition amongst them. Whatever business that is highly regulated and heavy competition based on price is going to bad for everyone.
The situation is worse in Europe because major telecom operators are in various countries. Competition is intense. To the point its been detrimental. This together with consumers switching away from SMS and cheaper plans have made telecom companies there not very attractive.
What I think is consolidation can be bad for consumers but better for operators. Will we see that happening? I think it will be sporadic and slow.
News out from Austria seem to be pushing towards such a scenario. It could possibly make the existing major players attractive utility stocks:
This month, the European competition commissioner, Joaquín Almunia, is expected to approve a combination of two mobile carriers in Austria, 3Austria and Orange Austria, reducing the number of network operators in that country to three. But it could also set a precedent that makes other telecommunications takeovers easier, said Beranger Guille, an editor in London at Mergermarket, an information service covering mergers and acquisitions.
Mr. Almunia exacted some concessions, but they were not as large as those demanded by national regulators in recent merger talks that ultimately fell through. While the deal now meets the competition requirements of the Austrian regulator, BWB, it also furthers the European Commission’s goal of encouraging the creation of regional telecommunications groups that can offer state-of-the-art wireless service across the single market of the European Union’s 27 members.
“We are not necessarily expecting a flood of M.&A. to occur if the Austrian purchase is approved,” Mr. Guille said, referring to mergers and acquisitions. “But it could mean one less obstacle.”
The creation of regional operators that can sell cross-border service simultaneously within several E.U. countries could bolster competition in individual countries and, at least theoretically, lead to lower prices for consumers. Currently, operators are required by E.U. and national laws to treat each national market as a distinct entity, contributing to limits on domestic retail opportunities and the rise of an oligopolistic status quo in some countries.
A new level of regional competition in the industry could lead to more vigorous direct competition between Telefónica of Spain, Vodafone of Britain, Deutsche Telekom and Orange of France, the big operators that until now have mainly avoided the home markets of their peers. If mergers were easier to pursue, Orange and the T-Mobile subsidiary of Deutsche Telekom, which have steered clear of each other’s domestic markets, could theoretically go head to head in France and Germany.
Maritheres Paul, a spokeswoman for 3Austria, said the company was optimistic that Mr. Almunia would approve the takeover of Orange Austria, which was announced in February.
[The New York Times | Telecoms Merger in Austria Could Open the Door to Further Consolidation | Read More]