KPN will sell its German business, E-Plus, to Telefonica Deutschland. Emeka Obiodu, principal analyst in Ovum’s telco strategy team believes “the
only surprise in this announcement is the length Telefonica was
prepared to go to strengthen its position in the German market.”
He continues:
“It has become glaringly obvious that the German market was becoming too much of a headache for the players. So today’s announcement is in line with expectations that consolidation was inevitable. Indeed, the deal reduces the number of players in Germany to three, in line with Ovum’s prediction that three players in European markets seems to be the balance in order to ensure adequate market competition while retaining healthy profits for the players.
“As the third and fourth players, O2 and E-Plus did not have the scale to adequately compete in a market where ferocious price competition has led to declining revenues and profits for telcos. Indeed on Friday, Vodafone, the second largest player in the market, reported a 5.1% decline in quarterly revenues, lending credence to its decision to seek a remedy with the acquisition of Kabel Deutschland.
“And Vodafone’s actions would have hastened today’s decision as O2 and E-Plus risked falling even more behind. Without a deal, they would have been operating in a market where Vodafone has just strengthened, and Deutsche Telekom enjoys the advantage of being the mobile market leader and the owner of a high-speed fixed broadband network.
“Instead, this deal catapults the combined O2/E-Plus to be the mobile market leader in Germany with over 37% mobile market share (year end 2012). For Telefonica, it looks canny how it has struck a deal to become the largest telco in Brazil (through taking control of Vivo), the largest market in Latin America and now it is doing the same in Germany, the largest market in the EU. No wonder it was prepared to add another 5 billion euros to its already large debt pile.”
He continues:
“It has become glaringly obvious that the German market was becoming too much of a headache for the players. So today’s announcement is in line with expectations that consolidation was inevitable. Indeed, the deal reduces the number of players in Germany to three, in line with Ovum’s prediction that three players in European markets seems to be the balance in order to ensure adequate market competition while retaining healthy profits for the players.
“As the third and fourth players, O2 and E-Plus did not have the scale to adequately compete in a market where ferocious price competition has led to declining revenues and profits for telcos. Indeed on Friday, Vodafone, the second largest player in the market, reported a 5.1% decline in quarterly revenues, lending credence to its decision to seek a remedy with the acquisition of Kabel Deutschland.
“And Vodafone’s actions would have hastened today’s decision as O2 and E-Plus risked falling even more behind. Without a deal, they would have been operating in a market where Vodafone has just strengthened, and Deutsche Telekom enjoys the advantage of being the mobile market leader and the owner of a high-speed fixed broadband network.
“Instead, this deal catapults the combined O2/E-Plus to be the mobile market leader in Germany with over 37% mobile market share (year end 2012). For Telefonica, it looks canny how it has struck a deal to become the largest telco in Brazil (through taking control of Vivo), the largest market in Latin America and now it is doing the same in Germany, the largest market in the EU. No wonder it was prepared to add another 5 billion euros to its already large debt pile.”
