More deals are likely to take place in the European telecoms sector, says an article in the Wall Street Journal. Telecoms firms hope that the consolidation happening in Austria, Germany and Ireland will reach other European countries, as political support for consolidation helps to bolster the market.
Moreover, the Brussels-imposed conditions regarding deal-making turned out to be more favourable than was expected in Germany. And deal prices remain within reason. For example, wireless deals were concluded at amounts equalling nine times earnings prior to interest, tax, depreciation and amortisation.
But not all European markets are ready for extra deals. French telecoms companies, Orange and Bouygues Telecom stopped talks over a possible deal, although Paris no longer insists on having four operators to support competition and consolidation and a deal would appear to be the best option. This would also suit French telecommunication services provider, Iliad, which would enjoy a boost from Bouygues Telecom's network.
In Italy, Telecom Italia's TIM Brasil has been coveted by Brazilian operators for a quite some time. The telecommunications company doesn't need to be a consolidation leader in Italy in order to reap benefits.
It's important to remember that not all deals are safe. The Wall Street journal looks at Dutch operator KPN's deal of selling E-Plus, its German operator. Though the transaction helped alleviate KPN's debt problems, it made the operator dependent on an increase of its home earnings. And that's not a safe bet as a fourth operator,Tele2, is in the process of building its own 4G network there.
All in all, the telecom sector in Europe would be better off consolidated, though it's wise for investors to keep their eyes open when making any moves on the telecom market.