Austrian takeover is a touchstone for telecoms dealmakers
Once the merger was crowned and three operators were left standing, it took a matter of days for something rare and unusual to jolt Austria’s cut-throat mobile phone business: prices started to rise.
Through Bob, Hallo, Yesss! or Go! – some of Austria’s snappily named mobile brands and tariffs – consumers are now generally paying more, especially for no-frills packages.
“We warned that prices would rise,” says Theodor Thanner, Austria’s competition regulator who questioned the EU approving Hutchison’s takeover of Orange last year. “Our forecast has been fulfilled.”
European operators, whose top ranks flock to Barcelona this week for the Mobile World Congress, see the shift very differently. To Andreas Bierwirth, head of T-Mobile Austria, the modest rises were simply the end of “more or less a joint suicide pact”.
Facing a revenue slump and a looming bill for next generation network investment, Europe’s telecoms sector are looking to in-country consolidation for deliverance. If they succeed, Austria is a glimpse at things to come.
The Alpine country of 8m people is atypical and in some ways defies commercial logic: it has some of Europe’s lowest prices and smallest customer bases but operates one of its best networks using its most expensive spectrum.
Yet its experience of 4-to-3 consolidation – the consequences of which are contested and still unfolding – is becoming the touchstone for Europe’s telecoms dealmakers and the competition authorities keeping their pent-up energies in check.
As Telefónica this week receives formal antitrust objections for its €8.6bn takeover bid for KPN’s German mobile unit E-Plus, Austria is both a guide to the coming negotiation – and a potentially discomfiting case study for the European Commission, the EU’s competition watchdog.
The sector is never shy of confronting its regulators, nor short of demands. When preparing for the Barcelona conference this year, industry chief executives agreed a five-point plan to present to Brussels.
Only the agenda – agreed at a meeting with the region’s top executives earlier this month – quickly became seven points. And even those gave only an outline of the arguments that executives hope will finally bring growth back to the sector.
But the executives know this year may be remembered as a turning point for just one decision – and there is no certainty it will go their way. A lot is riding on Joaquín Almunia, the EU’s competition chief.
Investors are piling back into telecoms stocks – driving them up 40 per cent since the summer – anticipating a shake-up leaving fewer operators with higher prices and better margins. A wave of deals in countries from Italy to Poland has been rumoured if the German deal goes ahead.
Mr Almunia, however, may be following a different script . He has repeatedly warned the industry not to expect a “blank cheque to consolidate” within national borders and raise prices “on the mere promise of more investment”.
His Austrian merger decision was initially met with alarm by the industry, who saw the conditions as onerous and harsh. Since then though prices rose about 10 per cent in 2012, with Telekom Austria going much further on some tariffs. It is exactly what Brussels wanted to avoid.
The cause will matter, especially if the increases continue. Should Mr Almunia conclude his “remedies” were too lax, it is a bad omen for Telefónica, whose German takeover bid poses even bigger competition problems.
Operators in Austria blame many factors for the modest increases: tidying up tariffs, falling roaming revenues, and the €2bn recently paid to the Austrian treasury for spectrum. Jan Trionow, head of Hutchison’s Austrian unit, called it “the most ridiculous auction in Europe”. “Consumers are not paying the price of low competition but of taxation on mobile broadband.”
Georg Serentschy, who recently stepped down as telecoms regulator, rejected the claims as “pure PR” that has “nothing to do with the truth”. “The objective of the price rises was clear enough – raising margins. Fine. Just don’t blame the auction.”
The other factor is that the merger – as it stands – went ahead without conditions. Mr Almunia forced Hutchinson to set aside spectrum to enable the entry of a fourth player – but there was no interest. “Nobody is stupid enough to step into an already ruined market,” says Hannes Ametsreiter, chief executive of Telekom Austria. “If [Orange] are close to bankruptcy, why should the others come in?”
The second requirement was providing access for mobile virtual network operators (MVNOs), who were not present in the Austrian market. While a handful are entering the market, the first will only be operating from the end of this year. Mr Serentschy reckons the “bold move” on prices was partly down to operators realising “it is their last chance before the MVNOs come in”.
Critics are calling on Mr Almunia to take a tougher line on Germany. Antonios Drossos of Rewheel, a Helsinki based consultancy, says the “toothless” Austria conditions must be strengthened by requiring the “actual entry” of a fourth network operator in Germany.
It poses a dilemma for Brussels: requiring an upfront buyer, or offering a package of assets to attract a new entrant may be too much for Telefónica to swallow. “Depending on the severity of any remedies the difference for the retail market between a block and a conditional approval might not be that great,” says one analyst.
The industry, meanwhile, want the fixation with consumer prices to end. “They need to decide what is best for Europe,” says Mr Ametsreiter. “Is it the cheapest prices where some players can’t survive, or is it the best infrastructure?”