Economic conditions in the Eurozone are becoming worse with the
potential exit of Greece and bailout plan in Spain, rendering
challenges to mobile operators. This sets the stage for European
Union (EU) mobile companies to plan a major consolidation.
With the cell phone markets in Western Europe being saturated,
these carriers are unable to produce high enough margins. The
surging demand for data is much higher than the services provided
by these carriers.
According to the reports from
Solon Management Consulting GmbH & Co
, data demand in Germany -- the strongest and most powerful region
of EU -- is expected to increase 15-fold over the next five years.
These will double operating network expenses to 23% of revenues in
2016 from 12% of revenues in 2011.
The EU mobile operators are facing increased hurdles from
European Union regulations, economic uncertainty, financial
inflexibility and limited capacity. They are in need for more
spectrums to fulfill the rising data demand. The carriers are
looking for new avenues of growth to curtail their costs as well as
fund their LTE services, which are not expected to reach European
markets until 2014 or 2015.
The EU carriers are taking steps for consolidation, often
through alliances with rivals, to achieve economies of scale. The
latest development was seen in the U.K., where the second and the
third largest telecom operators extended their network sharing
alliance.
Vodafone Group Plc
(
VOD
) and O2 U.K., a unit of
Telefonica S.A.
(
TEF
) plan to combine their wireless phone grids in Britain to boost
efficiency and increase their 2G and 3G coverage.
The network-sharing agreement would also enable the companies to
split the cost of building LTE technology-based networks next year.
This alliance will give head-to-head competition to the market
leader Everything Everywhere, a joint venture between
France Telecom
(
FTE
) and T-Mobile, a unit of
Deutsche Telecom
(
DTEGY
).
In Sweden, Norwegian operator Telenor and Swedish operator Tele2
are looking for ways to merge their operations to cut costs and
build LTE networks. In addition, O2 Germany, a unit of Telefonica,
and E-Plus, a unit of Dutch phone company Royal KPN NV, are also
exploring the possibilities of a merger.
For the short term, Vodafone, France Telecom and Deutsche
Telecom retain the Zacks #3 (Hold) Rank while Telefonica retains a
Zacks #4 (Sell) Rank.
DEUTSCHE TELEKM (DTEGY): Free Stock Analysis
Report
FRANCE TELE-ADR (FTE): Free Stock Analysis
Report
TELEFONICA S.A. (TEF): Free Stock Analysis
Report
VODAFONE GP PLC (VOD): Free Stock Analysis
Report
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