The ills of Europe are as well known as they are so often glorified, but the economic sector remains far from any diagnosis. At least until a non-EU giant like Saudi Telecom (STC) tries to become the first shareholder in one of the continent’s largest telecommunications companies, Telefónica. Only then do all alarms ring. The question is whether something more could have been done earlier to prevent the attack on Europe’s third largest telecommunications company, which is struggling on the stock market and therefore very favorable to non-EU investors who also benefit from a weak euro.
The most likely answer is “yes”: the lack of unified regulation in this sector, in the energy sector or – to a lesser extent – in banking, has not only prevented the emergence of continental champions, large European-made companies with a penchant for eating smaller fish to defend itself against the ambitions of third parties in the increasingly turbulent waters of the global economic sea. A generic diagnosis that reinforces the evil of a sector that has many difficulties in making profitable the enormous investments that the technological revolution requires.
Once the Saudi attempt for Telefónica has been formalized – which was not sought by La Moncloa or the company’s management and is not known – the Spanish anti-takeover protection opens a period of three months for the executive to reject or accept the deal, thereby setting the deadline conditions that it considers appropriate. But this brake, currently the only possible one, is a retroactive measure. The preventative brake could also have been something else: the umbrella that would have meant bringing together national champions into real European champions through cross-border mergers. A possibility that, according to the experts interviewed, has been made more difficult by the delays in overcoming national telecommunications, energy or banking markets to create real community markets.
“We have an imperfect internal market. That’s the cost of something [el expresidente de la Comisión Europea] “Jacques Delors called Non-Europe,” explains Cecilio Madero, a former senior official at the powerful Brussels Directorate-General for Competition. It refers to the multitude of regulatory and supervisory authorities in the 27 countries or to the lack of a single capital market, fiscal or tax union, which the Commission tried to correct by controlling state aid in countries such as Ireland, Luxembourg or the Netherlands, but that was overturned by the community justice system.
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Madero denies that this drought in mergers is due to excessive strictness in approval by Brussels, arguing that creating a behemoth or a continental champion would create a company with such an overwhelming market position that it would stifle competition. “Synergies are not synonymous with downsizing and merging departments to save money,” says a scientist who prefers not to be named, reminding us that innovation also counts and that, for example, competition encourages (or forces, as the case may be) from which angle). you look) to be innovative.
Only a few European companies are among the largest companies in the world
The problem with the European business ecosystem is not just the lack of big technology names – only the German SAP can receive this label – in the face of the American and Chinese push. Companies based in the Old Continent have been losing positions in the table of the world’s largest companies for decades, and this decline has accelerated recently: before the Great Recession of 2008, almost half of the world’s largest listed companies were European , today there are only about fifteen left. Among them there is no telecommunications, an industry that has complained bitterly for years about the low profitability they can achieve from their large investments in their networks, from which American Big Tech companies benefit.
The rhetoric of continental champions is by no means new, but the Saudi effort is a loud roar that is fueling debate over the advisability (or not) of favoring business travelers in key areas. “We can only hope that the authorities finally succeed in this [europeas] recognize that regulatory changes are urgently needed to increase returns [financieros de estas empresas] and thus create healthy European champions,” wrote Akhil Dattani and Alexey Philippov, analysts at American investment bank JP Morgan, in an analysis published just hours after STC dropped the bomb: its big entry into Telefónica – the similarities with which of has The Emirati Etisalat in the British Vodafone, in which the company initially bought 9.8% and is now almost 15%, turned the European telecommunications market on its head. And he also issued a strong warning to the sailors.
“If there were only three or four large companies operating at Community level, things would be completely different: any non-EU investor who wanted to take a relevant stake would be forced to invest a lot more money,” analyzes former Joaquín Almunia Vice President of Community Executive and former Skills Commissioner. “As we celebrate 30 years of the Single Market, it is time to reflect on why we still do not have a single telecoms market or regulator. The same applies to energy and banks, because the union of capital markets is not yet complete. “If there was this single market, creating European champions would be much easier.”
Almunia sees “hardly any explanation” for why every major telecommunications company has opted for cross-border mergers to grow. “The companies themselves and the states must answer why this did not happen, not the European Commission.” The same applies to the question of why there is not a single telecommunications regulator: If there is not one, it is because neither the states nor the “Companies themselves wanted that.” Carlos Martínez Mongay, former Director General for Economic Affairs of the European Commission, agrees: “My vision and my experience with the telecommunications sector is that they want to be pioneers in national markets. They have no interest in the internal market [europeo], because if they were interested they would pursue intra-community mergers. “We haven’t seen mergers of this kind for many years.”
In Spain in particular, a merger process is currently underway between Orange and MasMovil. Competitors support approval. But the European Commission is not clear: it has launched a comprehensive analysis process because it found in the first step that this could reduce competition and increase prices. Many eyes are on this operation and what the community board says is explained by expert legal sources on the subject. The same voice that speaks of an excessive regulatory culture points out that a paradigm shift is currently taking place due to the geopolitical situation and recalls a request made by President Ursula von der Leyen to the former head of the ECB and former Italian Prime Minister Mario Draghi is to produce a report on European competitiveness.
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The expression “European champion,” recalls Martínez Mongay, was conjugated in French from the beginning. “As the globalization process progressed and competition from foreign companies intensified, it was said that these champions were necessary to ensure that European companies compete on equal terms,” he recalls. One of these moments occurred in 2019, when Brussels blocked the merger of Siemens and Alstom, a decision that outraged Berlin and Paris. Approval would have made things very difficult for its competitors, including Spanish company Talgo, according to community sources familiar with the file.
Former official Martínez Mongay points out that it is not about this specific case, but more generally about the fact that “the problem is that in more than one case these were companies that could not exist without state aid were able to compete in the internal market.” Today, he says, he understands the need for industrial policy to try to put European competitors on the same level, on a par with American, Chinese or Arab companies. “But the state aid system needs to be centralized at the community level, rather than opening our hands to allow each country to do what it wants. We need to define what counts as European public goods and establish aid at a European level,” he says.
Downturn in the telecom stock market
The example of the United States is a good test for Europe. With 330 million inhabitants, four operators dominate the telecommunications market; In the EU, with a population of 450 million people, there are between three and four in each of the 27 Member States. Those that operate in other markets in the bloc, such as Telefónica itself in Germany or the French company Orange in Spain, do so through subsidiaries. But cross-border mergers continue to increase.
Its size, which is incomparably smaller than that of its non-EU counterparts – STN’s market value, for example, is more than twice that of Telefónica – is only part of the equation. The other has to do with the sharp fall in prices of telecommunications companies in recent years, particularly in the Mediterranean, which has put them within a stone’s throw of non-EU investors.
Since 2018, the Spanish company – like Italy’s TIM – has lost more than 40% of its value on the stock market, a trend that only recently corrected in the wake of Saudi interest. In both cases, the state renounced its participation after privatization. Orange (the former France Télécom, of which the State remains the main shareholder with 13%) loses 20% during this period. The counterpoint comes from the north: both the German Deutsche Telekom (with almost a third of its shares in the hands of Berlin) and the Dutch KPN (without public participation and whose first shareholder is the Mexican giant América Móvil) have accumulated an increase by 50% and 40% respectively.
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