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New investor in Telecom Italia could signal more consolidation among European telecoms: experts

Xinhua, November 8, 2015 Adjust font size:

Billionaire French entrepreneur Xavier Niel's surprise acquisition of options for a little more than 15 percent of the stock in former Italian telephone monopoly Telecom Italia could be one of the earliest signals of a long-expected consolidation in the European telecommunications sector, experts say.

Niel, best known as a co-owner of the iconic French newspaper "Le Monde," is also the owner of a French discount mobile phone and Internet company Iliad.

His stake in Telecom Italia, worth more than 3 billion euros (3.4 billion U.S. dollars) at current market prices, has sparked an investigation into possible competition issues. Officials are looking into the way the options were acquired and whether Niel was acting in concert with Vivendi, a French media giant that already owns a large chunk of Telecom Italia stock.

Even with the investigation going on, the Italian media and expert observers say there are many possible reasons Niel might have been attracted to Telecom Italia: it is possible he saw the stock as under-valued; he might be interested in Telecom Italia Sparkle, a subsidiary that controls regional Tier-1 fiber optic networks; or perhaps he wants to gain access to the Brazilian mobile phone market through Telecom Italia subsidiary TIM-Brasile.

"It's a good move for Niel and a good move for Telecom Italia," Raffaele Barberio, director of Key4biz, said in an interview. "Niel is savvy and he would not have made his move if he didn't see advantages, and for Telecom Italia it's a kind of blessing for investment funds that have been shy to invest in the stock. The fact that Niel is interested could make them take a second look."

But whatever the reason, it is likely the move is an early part of the kind of European telecommunications sector consolidation that experts have been predicting for years. Europe has more than 100 telecommunications operators, and through acquisitions and mergers it is expected the number will eventually be reduced to between 10 and 15. Such a consolidation would allow for greater standardization of services and content management, according to Carlo Alberto Carnevale-Maffe, a corporate strategy professor at Bocconi University's School of Management.

One thing standing in the way is the fact that most big telecommunications companies still maintain some level of state control, making them problematic takeover targets. The Italian government does have a "golden share" in Telecom Italia -- meaning it can veto major moves -- but otherwise the company is private.

"The lack of state control is one of the main factors that makes Telecom Italia an attractive takeover target," Barberio said.

Carnevale-Maffe said any company interested in being a major player in that consolidation would do well to look toward Italy.

"If you want to start the telecommunications consolidation in Europe, one way to start is with a major stake in Telecom Italia," Carnevale-Maffe told Xinhua. "I think this move could end up putting pressure on other European telecommunications companies." Endit