Telecoms deal

For years, the magic word in the telecommunications sector has been "consolidation." But while there was much talk about the desirability of mergers, there was little action - at least, not in Europe. Now the market's strong response to moves by Britain's BT to take over one of the country's mobile telephony providers, and similar deals elsewhere in Europe recently, suggests a wave of consolidations may have begun.

On Tuesday (16.12.2014), the stocks of both Deutsche Telecom and France Telecom gained sharply following BT's announcement that it was in exclusive talks about a takeover of EE, the country's largest mobile network, which is jointly owned by the German and French giants. If the sale goes through, it will create Britain's largest telecommunications company.

"We firmly believe that convergence is the future of telecommunications in Europe. Customers want fixed-mobile converged services from a single provider. The proposed transaction with BT offers ... an integrated business model," Thomas Dannenfeldt, EE CEO and Deutsche Telekom CFO said in a statement.

For its part, BT stressed the benefits of vertical integration, and the ability to offer "quadruple-play" services, bundling mobile and landline telephony with Internet and cable TV - although the demand for these services in Britain has so far been tepid.

"The proposed acquisition would enable BT to accelerate its existing mobility strategy whereby customers will benefit from innovative, seamless services that combine the power of fibre broadband, wi-fi and 4G," it said.

The deal would involve 12.5 billion pounds (15.7 billion euros) in cash. Deutsche Telekom would end up owning 12 percent of BT shares, while Orange would own 4 percent.

Deutsche Telekom CEO Tim Höttges said he expected the sale to close in first quarter 2015. Discussions with BT had gone very well, he said on the sidelines of an event in Mannheim. "If no significant obstacles appear in due dilligence, it will go quickly."

Most analysts expected BT would bid for O2, the third-largest provider, which BT had spun off in 2001 in an effort to reduce debt following poor investments in the dot-com crisis. The company was soon worth more than its former parent - and was purchased in 2005 by Spain's Telefonica. A return to the BT fold seemed almost a natural development - and that scenario would have been a case of deja vu, with Telefonica willing to shed its mobile assets as it seeks to manage a mountain of debt.

In contrast, EE - formerly Everywhere Everything - is itself the product of a merger between Deutsche Telekom's T-Mobile unit and France Telecom's Orange that came about in 2010 as the two firms, then the third- and fourth-largest carriers, struggled in the highly competitive British mobile telecomm market.

As goes Britain, so goes the Continent?

As one of Europe's largest and most competitive communications markets, what happens in Britain can have a signal effect for the rest of Europe. And following similar deals in Ireland, Denmark and Austria, there are signs that European markets cannot sustain four or five major players in the face of price wars and mobile virtual network operators (MVNOs) that piggyback on established telco infrastructure.

Earlier this year, Telefonica's O2 unit in Germany, the country's third-largest mobile provider, took over E-Plus, the fourth-largest, owned by Dutch firm KPN, for 8.6 billion euros.

In France, which long had one of Europe's least competitive markets, the government pushed unsuccessfully for a merger of two of the country's three incumbents, Bouguyes and SFR, although SFR was ultimately snapped up by cable firm Numericable. But last month, Bouguyes' stock price rose on reports that Altice, Numericable's parent company, was interested in its telecoms assets.

Europe's telco merger merry-go-round looks set to pick up pace in 2015.