Mobile consolidation: from market pressure to deal momentum

Mobile consolidation is back on the agenda in Europe – but this time, the pressure is different. 

Operators are facing slowing returns, rising capital pressure and increasingly competitive markets. At the same time, regulators are showing greater openness to consolidation and network-sharing models that can improve scale and efficiency. 

In this video, Charles Murray, Partner, explores what is driving renewed consolidation momentum across European mobile markets. Charles explains why operators and investors are revisiting consolidation strategies, where pressure is building and what separates deals that progress from those that stall. 

Charles also examines the growing role of network economics, strategic alignment and regulatory positioning in shaping successful outcomes. From full M&A to 3-to-2 network-sharing models, he outlines the opportunities, challenges and execution risks facing operators today. 

The message is clear: consolidation is no longer just about scale, it is about creating sustainable returns in increasingly pressured markets.

Learn more about how we support operators, investors and lenders during a consolidating mobile market or speak to one of our experts now.  

Transcript

What has changed to put consolidation back on the agenda now? 

So consolidation has always been on the agenda. However, there's a number of parameters around at the moment which make it sort of higher up there. Firstly, there's the financial stress that the operators are on: limited shareholder returns, depressed share prices, and that’s continuing. Secondly, 5G deployments, 5G roll-outs, have been very expensive. Operators feel that they've gone probably too fast, spent too much money and there's no returns, no additional upside from 5G and that's become abundantly clear. And then thirdly, just the competition authority's stances on consolidation. The European Commission has clearly telegraphed that it will consider 4-to-3 and potentially 3-to-2 network sharing as well, which makes the ability to get the deal through the competition authority much higher in terms of probability. Pull all those altogether and consolidation is back on the table.
 
What are the strongest arguments you’re hearing both for and against consolidation? 

So the arguments for and against consolidation have been pretty standard. Full consolidation is all about business and network scale, size and efficiencies, which should lead to a lower cost to serve. The underlying piece on that is actually the network can be bigger, more capable, more capacity, more coverage – more notspots that are covered, more rural coverage, etc. So that leads to economic value add for the country as a whole. The challenges around consolidation are intrinsically market structure. Fewer competitors implies higher prices for consumers. That doesn't necessarily always work out in case, but that's what the competition authorities will be worried about.
  
When you look at today’s mobile markets, where is the pressure coming from? 

The pressure comes from the fact that the markets are highly competitive. Here, we've got markets which suffer from or benefit from network economics. So the bigger the network, the more scale it has, the more cost effective it is. And that leads to a ‘winner-takes-all’ mentality. So you know, operators are constantly pushing on market share and that’s with the undifferentiated product set, which in reality, being brutally honest, we have – that leads to a race to the bottom. And we've seen that across pretty much most of the markets in Europe. That leads to challenges at the top line with increasing cost base, financial pressure and that's where we're at today.
 
Why do some consolidation processes gain momentum, while others stall? 

So we've seen consolidation talked about between operators for a long time now. What we see is the successful ones, the ones that gain momentum, basically come from better strategic alignment. So strategic alignment within the business, so between the shareholders and stakeholders and senior management, but also between operators as well. Is there alignment on how to get the deal done, what ultimately the joint company will look like, what's the shareholding of that? So that strategic alignment is the most critical piece and that's why we see consolidation talks gain momentum or stall.
 
What should operators and investors be doing now if they want to stay ahead of consolidation opportunities?
 
Both operators and investors should be talking to competitors, sounding them out, having the sort of high-level discussions – is there that degree of strategic alignment? And I think they should be taking quite a strategic approach to that as well. So, getting alignment internally between the executive teams and shareholders where they're private shareholders, but also, taking that forward to talk to the two other operators, do that in a strategic and coherent fashion. So that's the number one thing that should be happening. And in the background as well, they can also be looking at sort of wargaming out if they're in a market where they're not the consolidator and unlikely to become the largest, etc., which is much harder to become the consolidator. In those scenarios, they should be sort of considering what would a consolidator market look like and how they should help maybe facilitate that happening. So sort of wargaming the scenarios.

How does 3-to-2 network sharing fit into the case for consolidation?
 
Network sharing is an alternative to consolidation for operator consolidation. And we see it particularly relevant in markets where there's three operators to date rather than four. Network sharing is a challenge mainly because it's not just a pure M&A where one of the shareholders may be walking away and a joint business created, but actually it's a marriage and the operators who are competitors have to live together going forward. So it needs to be considered in the same light as full M&A and in some ways is a more complicated outcome, but drives efficiencies and scale in the same way.
 
What is your view on the European Commission’s recent shift towards supporting scale and competitiveness in Europe?

I'm sure we've all read the headlines about the European Commission creating European Champions and it's a challenge because it's been talked about a lot before. However, taken with also the point around network consolidation at the country level, it's a very interesting direction to go. I think there's an awful lot of potential, but there's an awful lot of challenge to go through. I would see the country-level opportunity is arising much sooner and faster, but there's definitely a lot of campaigning and setting out what a vision for European Champions could look like. It’s just going to take longer to get there.
 
What makes Analysys Mason the go-to adviser for operators, investors and lenders involved in consolidation?

I'd say Analysys Mason's capability across the four deep domains of mobile operators is a real differentiator and we can really help add value. So around the sort of financial investor lens, commercial market positioning and understanding how that will evolve through the consolidation. The technical domain where the synergies are developed, but also this regulatory and competition authority – how to make the whole package in a way that will get through the competition clearance. I think that's our capability. And we've been around for a very long time now, a lot of senior grey hair out there, which really sort of helps in this domain. Seen it all before. We've had people who have worked in mergers before to understand what it's like. And thirdly, credibility. We are very much the tech, media and telco strategic consulting firm, the experts in the domain. And, we've got a lot of horsepower to bring to bear on the challenges ahead with a real drive to make consolidation happen for the better good of the industry and also the parties involved.