Telecom consolidation continues with revived Telefonica merger with KPN

Two of Germany’s leading telecom firms are looking to join forces after abandoning a deal over a year ago


The trend of mergers between European telecom giants is set to continue amid news that two of Germany’s largest firms are reviving discussions over a deal that was thought to have ended a year ago.

Telefonica Deutscheland, the German arm of Spanish telecom giant Telefonica, has bought Dutch firm KPN’s E-Plus unit for €5bn. In return, KPN will retain a 17.6 percent stake in the new business, meaning the entire deal is worth around €8.1bn in total.

For the German market, this deal means that Telefonica, which owns the O2 Deutschland brand, will control 38 percent of all users. Currently, E-Plus and O2 Deutschland are in direct competition for third place in the market, which is dominated by Vodafone and Deutsche Telecom.

The news of the merger was met with concern about the continued integration occurring between Europe’s telecom firms. In 2009, the UK saw a merger between Deutsche Telecom and France Telecom’s respective T-Mobile and Orange brands create EE for a total of £7.7bn. The deal drew criticism from rivals including Vodafone, who saw it as giving the new firm an unfair advantage.

However, while regulators have looked at these deals in detail, some think that they will be more accepting of this latest merger as it will enhance network provision across Europe. Ronald Klingebiel, professor at Warwick Business School, told Bloomberg: “Even as the EU generally frowns upon in-market consolidation, they may now be more lenient toward this type of deals as its policy starts to change toward fostering pan-European network provision. Still, the deal will face high regulatory scrutiny both in Germany and at EU level.”

International industry leaders have called for further consolidation in the European market, however. Portugal Telecom CEO Zeinal Bava told a conference in July that European firms should look to learn the lessons of US rivals in the search for a leading role on the world stage.

He said: “Europe doesn’t like in-market consolidation and the US loves in-market consolidation. And I think the US is right, because if you don’t have in-market consolidation, you don’t look at the EU as one big market, then we will always lag behind the US.”

Portugal Telecom was looking at Brazil to expand, taking a 23.34 percent stake in the country’s Oi network. Bava added: “European operators have to get together simply because we are competing against very large companies worldwide. Either we scale to compete or we get priced out of the market.

“Unfortunately Europe has taken the view that in-market consolidation has not been a priority and that means it will be very difficult for European operators to aspire to the kind of efficiency that a market like the US is developing now.”