Walk on the wild side: Completing the EU Single Digital Market, market consolidation in the telecoms and payments industries and how I learned to love convergence and stop worrying!

06/25/2013

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Markets are echoing of rumours about new M&As, the European Commission is readying for a new set of far reaching legislative actions and it is not only about the telecoms/digital markets...


A teaser....

The Thrill is gone

Flashback…

Remember….
Once upon a time, Europe was seen as a major growth, freedom and stability area with many commentators gloating on how it will soon rival if not dethrone the declining United States of their crown as the most important Superpower status, rivalling with new emerging powers, giants awakening that will compete with the EU.

Remember….
One the major success story resulting from the European Union actions towards building an integrated Single Market was the opening to competition of the Telecoms markets and in particular the tremendous success of the adoption GSM standard and development of the mobile markets.

Remember…
Commentators and pundits alike were stating that the U.S. were losing their competitive and technological edge in particular in the mobile sector where poor infrastructures and coverage, tariff structures where both caller and receiver had to pay for the call were leading to lagging penetration rates (although of course reality was a bit more contrasted…).

Remember…
The telecoms sector globally was such a success story that it went through its very own boom and bust cycle, the biggest one in the early 2000s associated to the Internet bubble and even had its own massive major corporate scandals and spending tens of billions acquiring 3G licences.

Remember…
European Mobile operators were expanding their global footprints in Latin America, Africa, Middle East, and Asia, spending billions acquiring operators or licences …

The year of living dangerously
Flash forward to 2013…

“Telecoms operators are stuck in tiny national markets, with borders and barriers at every turn. Expanding means dealing with a tiresome patchwork of multiple systems: for licences, spectrum, numbering and more.

And that's bad news for consumers. With hundreds of providers in Europe, mostly you can only choose among 3 or 4. And it's too hard to communicate across borders. Quality is poor; there are few innovative services beyond basic phone calls; and prices are unfairly high. If I phone the town next door, within our single market, that shouldn't count as a costly "international" call. And the mobile in your pocket should not be the last remaining reminder of our internal borders: they should have disappeared long ago.

This isn't a problem in the US or China. There, operators serve hundreds of millions, under a single set of rules. No wonder they are racing ahead of us. No wonder Europeans suffer from poorer connections and slower broadband. No wonder European players are losing out in almost every corner of the ecosystem. No wonder all the major internet players come from outside Europe, from social networks to device makers.” (See:http://europa.eu/rapid/press-release_SPEECH-13-559_en.htm for the full speech).

Those are some of the searing words extracted from the rousing speech that Nelly Kroes, Vice President of the European Commission responsible for the Digital Agenda gave in Dublin on the 20 June 2013, part of a determined campaign she is currently leading calling for immediate action to complete and fully implement the Digital Agenda, a key strategic objective from the European Union.

And action will take place as the Commission is planning to issue a new legislative package in July 2013 with the intent to complete the Single Digital Market… And how moves such as the deal between Telefonica and Three in Ireland or the potential deal between Three and Telecom Italia in Italy (including the parallel divestiture of Telecom Italia’s Fixed Access Network) will be appreciated by the EU?

What are the actions the European Commission to have adopted and implemented ASAP and possibly before the end of 2014?

Coincidentally, the analysis and efforts developed by Nelly Kroes, the GSM Association in association with Navigant Economics published on 29 May 2013 an interesting document examining the widening gap between the U.S. and E.U. Mobile markets and again it is a quite bleak assessment (see: http://www.gsma.com/newsroom/new-gsma-report-highlights-widening-gap-between-european-and-united-states-mobile-markets). But what is the response from Vice President Kroes and her own assessment of the U.S. market?

Love in the time of Cholera: Why major U.S. telcos would want to invest in Europe at this time of economic, political, competitive and financial woes?

The market is awash with insistent rumours of AT&T wanting to invest billions buying a major European telcos – and the list of targets supposedly courted –or stalked – by AT&T is getting longer with every passing day.

Huh? Really? But why? Why now? Why Europe and not another more promising market are asking analysts? And to do what?

Are we going back to the times of Mega-Mergers (note that the U.S. market is already experiencing them with the purchase of Sprint by Softbank and subsequent battle for Clearwire)? What are the rationales and benefits? Is that a diversion to mask other strategies of market penetration?

Anne Morris in her insightful editor’s corner published by Fierce Wireless on 21 June 2013 is reminding how both the criticisms and M&As rumours could force European operators to wake up (see http://www.fiercewireless.com/europe/story/fascinating-europe-gets-boost-ma-rumours/2013-06-21?utm_medium=nl&utm_source=internal).

The colour of money

The payments industry is of course itself under important market, strategic, regulatory and policy evolutions and disruptions (see previous posts on this blog).

The anticipated legislative package to be presented by the Commission in July 2013 with a regulation on interbank/interchange fees and many others wide-reaching actions will be a market shaker.

Talking about rumours…. Another one is currently flying around of a possible sell back of shares held by European Banks into Visa Europe to Visa Inc. or somebody else… Although it is an option apparently contractually foreseen by the agreements that led to the creation of Visa Europe, and beyond a pure financial interest, it is not immediately obvious why European banks would decide such an action, forcing them to develop their own card payments system, at an important cost?

It won’t either lighten or decrease the regulatory and competition-law based pressures and concerns of the European Commission and National Public Authorities/Competition Authorities considering the banks current market positions…

New players in particular from the mobile and technology industries are keen to take a decisive step in the payments industry as explained in the very interesting ‘ Future of Payments’ report published by Raconteur Media on the 23 June 2013 in The Sunday Times (see: http://np.netpublicator.com/netpublication/n94946847).

A number of analysts are already pronouncing the death of traditional banking as a now unavoidable fact and Mobile banking to reign supreme (e.g. see the new Mobile Bank, Hello Bank launched recently in France by BNP Paribas).

But what if?

What if a major mobile operator or technology company was acquiring a payments provider such as Visa or even a Bank (possibly then selling back to other players the assets that are not relevant for them?)?

Can we foresee such strategic move in the current environment? Could AT&T takes a first before a merger to enter the European mobile market through a more convergence related move (e.g. in the fields of payments or M2M/Smart Connected Living?)

We shall be developing some of these topics in a subsequent post soon to be published…

So, as always…Stay tuned!