Europe’s telecommunications industry needs to consolidate, Deutsche Telekom Chief Executive Tim Hoettges said on Friday, as the region’s 100 operators invest more in 5G networks at a time when revenue and profits are under pressure.
“The industry is in a dilemma that it can only escape through cost synergies,” Hoettges told a news conference, repeating earlier calls for consolidation. “I believe deeply that European consolidation is necessary.” Yet the Germany-based telecom provider, that owns a majority stake in T-Mobile US, is not in active merger talks.
Earlier this month, Borje Ekholm, chief executive of Sweden based equipment maker Ericsson told the Financial Times that Europe has a “non-functioning” telecoms market. Ekholm suggested it was rational for Europe’s telecoms operators not to invest in 5G networks, because many of them failed to earn their cost of capital. “The problem is that the guys that are supposed to build out that infrastructure (wireless telcos) don’t make any money. There is a very big cost to waiting,” he added.
Ericsson is worried that Europe is falling far behind China and the U.S. in the rollout of 5G, which it argues will be crucial for the digitalization of businesses. The company has forecast that 5G could boost the continent’s gross domestic product by 2 percentage points a year.
“Without [5G], general industry will be less efficient and less competitive. Without the infrastructure, it’s hard to develop the digital industry, and that impacts huge value potential and potentially millions of future jobs,” said Ekholm.
The European 5G network equipment makers — Ericsson and Finland’s Nokia — also have a big strategic and security role, as Europe grapples with how much market access to give to their Chinese rival Huawei.
Europe has dozens of telecom operators, but attempts to consolidate in some countries have been blocked by the European Commission because of competition worries. That led some operators to complain their profitability lags far behind bigger U.S. rivals.
Several countries, including Germany and the UK, are pushing for the creation of additional telecom equipment makers, as well as the opening up of networks to other companies. Ekholm expressed surprise that Europe would do anything to undermine Ericsson and Nokia, as telecoms was one of the few technology sectors where the continent had “strategic autonomy,” he said.
“It is interesting to see that now there is a discussion about giving EU subsidies to develop competing companies, mostly they are based in the US and Asia.”
He added that it was vital for Ericsson “to be in markets at the forefront of tech development: China and the U.S.”
“For us to have a presence in both China and the U.S. allows us to be a global tech leader. It is high risk to be only in one ecosystem and not the other. It could ultimately lead to the Chinese ecosystem developing faster thanks to its scale.”
Ericsson’s CEO previously spoke out about Sweden’s ban of Chinese telecoms vendors, e.g. Huawei and ZTE. Ekholm insists that there are currently too many disincentives to invest in European telecom infrastructure. He’s probably right.