Size matters in the telecoms industry. But a group of so-called “maverick” telecoms operators that aim to disrupt the mainly staid industry of monolithic groups are finding that the regulatory environment is helping to bring larger rivals down to size.
Even as executives at the incumbent groups are hoping to make the case that fewer, larger carriers are needed to create a healthy telecoms market, more European governments are starting to think the opposite might be true.
Regulators in Germany and Belgium have in recent weeks opened the door to new entrants to the mobile sector. Both markets have already consolidated to three networks but could offer spectrum to a fourth operator.
The advantages of encouraging a new generation of maverick telecoms groups has been kick-started by Iliad, the French company that proved to an enfant terrible in France after triggering a sustained price war in 2012 that caused mayhem for the established players.
Iliad this year transplanted that model to Italy, having secured network infrastructure as part of the conditions to allow the merger of Three, a former European telecoms maverick itself during the 3G era, and rival Wind in 2016.
Rivals were initially confident they could fend off Iliad with their own lower-cost brands. Yet Iliad, which launched in May, added 1m users in its first 50 days in Italy with an aggressively priced €6 a month package.
We believe these are levels where it is not easy to make money in the long term
While not yet in the same league as Reliance Jio in India, which added 215m customers within two years of its launch, Iliad has made its presence felt. Vodafone recorded a 6.7 per cent drop in revenue in Italy in the quarter that Iliad launched.
Established companies have questioned whether Iliad can keep up with the pace. Vittorio Colao, Vodafone’s Italian chief executive, said Iliad’s pricing was very aggressive. “We believe these are levels where it is not easy to make money in the long term,” he said.
Amos Genish, chief executive of Telecom Italia, agreed that the upstart’s offers were not “sustainable”.
Both companies also questioned the quality of the users that Iliad had scooped up. “The customers we lost to Iliad are mostly what we call ‘surfers’ — those that pass from one operator to another,” said Mr Genish.
Yet southern Europe has proved it can sustain a maverick fourth company. MásMóvil was launched in Spain in 2008 after the regulator decided that the country’s three big mobile operators — Telefónica, Vodafone and Orange — had too much power. It has thrived with a low-cost, no-frills brand and it remains the fastest-growing network in the Iberian country a decade after it launched.
Telefónica has responded by launching O2, a British brand, into Spain as a lower-cost network. Luigi Minerva, an HSBC analyst, said that the fourth group had ensured Spain remained a vibrant market. “It is also generally supported by the regulator, which considers the presence of the ‘maverick’ MásMóvil as a positive for competition,” he said.
Competition — and so lower prices for consumers — has become a priority for regulators in Europe. Even in the small Belgian telecoms market of three networks — Proximus, Liberty Global’s Telenet and Orange — regulators argue that the country’s phone users pay more than markets such as the UK.
The Belgium government has said it is willing to “shift the goalposts” by reserving spectrum for a fourth player, while the regulator has said there has already been interest from an established telecoms company.
The German cartel office has followed suit by calling for a spectrum auction for a fourth operator, despite the objections of incumbents Deutsche Telekom, Vodafone and Telefónica.
Jacques Bonifay, chairman of trade body MVNO Europe, called for a shake-up of the current market structure as “the behaviour of incumbent German operators runs counter to enabling competition and innovation”.
There appears to be no lack of interest from new entrants. Seven bidders, including Iliad and fixed-line companies Open Fiber and Fastweb, have applied for Italy’s 5G spectrum auction. Drillisch, which offers telecoms services using other company’s networks in Germany, has been linked with a full launch of its own. Iliad is seen by some analysts as a potential entrant in Belgium.
But there is still opposition both by the incumbents as well as their investors, which have long demanded a more stable regulatory environment to guarantee the sorts of returns needed to support future 5G and fibre network rollouts.
There also remain questions over how profitable a new entrant can be — even in Germany, Europe’s largest telecoms market.
Maurice Patrick, an analyst with Barclays, said: “We struggle to see the rational to stimulate the entry of a fourth player in Germany when it has been proven time and again that mobile markets of this size do not allow for four profitable players. In our view the focus should be instead on stimulating 5G rollout, which will require important investments.”
An attempt to create a maverick network in Ireland when Three bought O2 in 2013 failed as iD Mobile, launched by Dixons Carphone as a result of remedies after the merger, was liquidated this year. Tele2, a challenger network in the Netherlands, was sold last year to rival T-Mobile.
France, long held as the test case for maverick network given the success of Iliad, may soon be at the centre of the debate again. The regulator has opened the door for a consolidation back down to three companies — a move that will be scrutinised by regulators around Europe.