Europe's planned telecoms mega merger between Telecom Italia and Deutsche Telekom will raise important questions for other operators in Europe, according to analysts.
Telecom Italia yesterday gave its preliminary approval for plans to merge with the German operator, thereby creating one of the world's largest telcos - with market capitalisation of around $180 billion - that would tower over its competitors in Europe.
But analysts are divided over how the telcos' competitors would react if the huge deal goes ahead and passes the tough regulatory hurdles likely to be presented by the European Commission.
Some say other European telcos such as BT and France Telecom (FT) will spring into action, seeking mergers and acquisitions in an attempt to size up alongside the new giant. While others say the new telco's competitive edge will be hampered by efforts to integrate the two businesses.
"It will be a catalyst to drive other mergers and acquisitions. It leaves BT and FT in untenable positions and I could imagine these two combining," said John Moroney, principle consultant at Ovum.
"At the moment they are facing a big Deutsche Telekom, now they will be facing a huge company that will be twice the size of them, covering about one third of the European market," he added.
However, both Deutsche Telekom and Telecom Italia are under huge pressure to cut call charges and reduce operating expenses and staff numbers. This would hamper the effectiveness of the operator, according to Robin Duke-Woolley, senior consultant at Schema.
"It is likely to make them less competitive than more competitive. So long as it doesn't change the regulatory environment, it would be good news for BT because it would likely reduce the effective competition until they sort themselves out," said Duke-Woolley.
But Moroney said BT may come under pressure to maintain a high profile in Europe to protect its international joint venture with AT&T.
"BT needs to act very quickly to reposition and grow their market - the easiest way to do that is through merger and acquisition," he said.
"BT's alliance with AT&T - the real value to the alliance [BT brings] is the gateway into Europe. If it fails to deliver, the whole alliance looks shaky to me. BT has got to make its stake as one of Europe's leading telcos," said Moroney.
The operator facing bad news is France Telecom, which would lose an important strategic partner if Deutsche Telekom was forced to sever its close ties with the French operator. The companies' chairmen sit on each others' boards and each holds a two per cent stake in the other. The companies, along with Sprint, also own Global One.
European competition commissioner Karel Van Miert said yesterday he would be considering the alliance between Deutsche Telekom and France Telecom. "If we have three big incumbent operators coming together, two merging, and one as a partner, it creates all kinds of problems," he said.
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