Time for European telecom consolidation to make a comeback?

Consolidation could make a comeback in the European telecom market in the New Year as companies struggle to recover from record low industry valuations, according to a new report published by Bloomberg Intelligence (BI).

The Europe Telecommunications 2021 Outlook report warns the industry faces a battle to boost sentiment and there is limited scope for the Stoxx 600 European Telecom Index to significantly improve its 2021 relative-return performance in 2021.

The European telecom sector should see its top lines recover during the year after the dent they suffered from the Covid-19 pandemic but capital spending and margin pressures will limit the scope of any sector re-rating. However, the report forecast that the sector could see the return of market consolidation with carriers looking to test EU regulators following the court challenge to the EU’s decision to block the Three-O2 deal.

Erhan Gurses, telecom team industry analyst at BI, said, “The pandemic pushed industry valuations to a record low but a subdued cash-flow outlook may hinder re-rating potential. M&A could support valuations if private equity interest is sustained.”

Spain and Sweden look the likeliest countries for consolidation – in Spain where five companies compete there is regular speculation about tie-ups with a recent joint venture between Masmovil and Vodafone, while in Sweden Three is seen as a likely target for Tele2 or Telenor. Italy could also see consolidation in infrastructure with Telecom Italia eyeing Open Fiber and in Belgium cable operator could target regional company Voo.

The report also argued that private equity interest is partially driven by continuing low-interest rates while the pandemic boost to digitalisation has increased the appeal of investing in companies linked to connectivity.

The following two tabs change content below.

Charlotte Hathway

Charlotte is the editor of Comms Business and writes content to inform and educate the Channel about the latest technology and business developments. Got a story? Get in touch – charlotte.hathway@markallengroup.com.

Latest posts by Charlotte Hathway (see all)