Europe eyes bigger, fewer telco firms in envy of US and China

Europe’s sprawling telecom sector — long touted by Brussels’ powerful competition department as a success of open market regulation — is fast becoming a go-to illustration for those looking to prove the Continent is falling behind the United States and China.
The European Union has 34 mobile network operators. China, by comparison, has just four and the U.S. has three.
That statistic is what drove the European Commission’s top advisor Mario Draghi to warn that telecoms companies aren’t generating enough profit to fund the investments needed to bring Europe’s industry to the cutting edge, in his report earlier this month.
Backed by Draghi, European Commission President Ursula von der Leyen is promising to change that. She’s asked her competition commissioner nominee, Spain’s Teresa Ribera, to review merger rules with an eye to the “investment intensity of competition in certain strategic areas.” That in turn is hoped to spur new investment in digital networks to help Europe catch up with the power of Big Tech in the U.S. and the flurry of challengers coming from China.
For European telecom giants it is a “whatever it takes” moment to deliver the connectivity ecosystem that the sector needs to put the EU back on the map, Alessandro Gropelli, director general of lobby group Connect Europe that represent Deutsche Telekom, Telefónica and Orange, said in an interview.
But smaller telecoms operators, consumer advocates and competition enforcers fear the push could see customers paying more with no guarantees of better results. European consumers on average pay €16.15 for 20 gigabytes of mobile data compared to €37.87 in the United States, a recent study by the European Commission showed.
Margrethe Vestager, the EU’s outgoing top competition enforcer, also clapped back at Draghi’s report earlier this month, saying: “We have not seen proof that bigger businesses invest more.”
In his report, Draghi blamed Europe’s legal framework that had led to a “multiplicity of smaller players,” as well as the “costly proliferation” of laws across the 27 member countries.
That’s led to operators investing less in upgrading networks, which “may represent a risk for industrial companies in a phase when state of the art infrastructure is required to digitize manufacturing, supply and distribution chains,” Draghi wrote.
Network operators have long pointed to market fragmentation and rigid competition laws as barriers to growth, saying they make it difficult for them to secure the investments needed for faster connections and to power the EU’s digital transformation — a tab that could reach €200 billion, according to the Commission.
Tim Höttges, chief executive of Deutsche Telekom, the EU’s largest telecoms firm by revenue, despaired at an industry event earlier this year that he and his rivals were “dwarves here in Europe” struggling to become bigger, more profitable players.
Draghi acknowledged that lower prices for telecoms services have “undoubtedly benefitted citizens and businesses” but saw them as having gone too far, noting that the market capitalization of telecoms providers shrank by more than 40 percent from 2015 to 2023.
Antitrust officials have long been skeptical of pleas by telecoms firms to be allowed to buy each other, interpreting the defense of merger savings as an excuse to increase profit margins at the expense of customers, who risk paying higher prices or receiving an inferior service.
Over the past decade, the EU has blocked or warded off a host of telecoms deals that saw a large operator gobble up a smaller rival.
Although regulators claim there is no “magic number” for how many operators they allow in one country, deals that see four rivals in a market turn into three tend to get a hard time. The rare deal that passes scrutiny often involves efforts to create a new competitor.
Consumer group BEUC said greater consolidation and deregulation in telecoms “is likely to reduce competition, and it is consumers who could very well end up paying the price.”
Smaller telecoms operators agree. Luc Hindryckx, director general of Ecta, said big firms “spend astronomical sums” to paint an inaccurate portrait of the sector “as being on the verge of bankruptcy.”
“These messages are easy to convey, it’s populism,” he said.
Like it or not, the push to reform merger policy for competitiveness — the EU’s new favorite word — is firmly embedded in the next Commission’s agenda.
Ribera, in line to become the EU’s new merger enforcer, clearly got the memo. “We need the size to compete in international markets, but we also need the internal market to work,” she told El País shortly after being nominated for the chief competition role.
It isn’t clear that EU governments are fully on board, however. National experts will work out their view on the future of telecoms at a Tuesday meeting.
Their position acknowledges that “market-driven consolidation” — i.e. more mergers leading eventually to fewer operators — “could foster investment” in the networks and “open up further opportunities for growth and innovation.”
But they aren’t completely sold, according to the text, which emphasizes that policymakers should consider “other ways to build up scale.” They also want guarantees of healthy competition and consumer welfare.
They demand, moreover, that the Commission carefully analyze Draghi’s recommendations and do some “solid” work to demonstrate the impact of any future legal changes.
For telecoms firms, this is a moment that needs to be seized.
“2025 is going to be the year of connectivity,” Gropelli said.
This article has been updated.