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Technology, Media & Telecom

Mobile World Congress: Telecoms Industry Warns Against Overregulation In Europe

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Technology, Media & Telecom
Mobile World Congress: Telecoms Industry Warns Against Overregulation In Europe

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

The following post comes from Kagan, a research group within S&P Global Market Intelligence. To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.


Telecoms leaders attending the annual Mobile World Congress have warned that too much regulation in the industry is undermining operators' ability to invest in future networks.


Speaking during a February 27 keynote, Vodafone Group Plc CEO Vittorio Colao noted that the European market has a tendency toward overregulation. He also urged regulators to open up more spectrum for operators.


"Spectrum has been too expensive. We need to make spectrum affordable [in order] to incentivize investment," he told delegates in Barcelona.
Although parts of Europe boast some of the world's most affordable prices for consumers, industry bosses argue that declining revenues in what remains a highly capital intensive market has made it challenging to fund costly infrastructure projects and develop 5G networks.


Research published last year by Swedish communications giant Ericsson AB suggested that Western Europe was already lagging its global peers in the 5G race. By 2022, the company projects that just 5% of mobile subscriptions in Europe will be 5G, compared with 25% in North America.
"The reality of governments in 2018 is that they exert increasing control of telecom infrastructure," John Strand, CEO of telecoms consultancy Strand Consult, said on the sidelines of the event.


Describing current levels of regulation as one of the industry's "greatest challenges," Strand agreed that regulators had negatively impacted investment in Europe, widening the funding gap between the region and other markets.

Largest telecom companies, 2017

A decade ago, European giants Telefónica SA, Deutsche Telekom AG, Telecom Italia SpA, BT Group, and Orange SA, formerly known as France Telecom, were among the 10 largest telecom companies in the world, according to Forbes Global 2000 records.


Last year, however, only three made that list. By contrast, the number of Asian operators in the top 10 grew from two to five during the same period.


Mega-mergers


As European telcos grapple with regulators, much of the criticism has focused on their hardening approach toward industry mega mergers.


Sunil Bharti Mittal, founder and chairman of Bharti Enterprises and chairman of the GSMA, the industry body behind Mobile World Congress, said in a keynote that industry consolidation was still facing too much resistance.


Despite more than a decade of M&A, there are still more than 120 major mobile operators estimated to be in Europe, serving a population of 741.4 million, compared with just three operators in China, serving a market populated by 1.38 billion people.


But while in-market mobile consolidation might solve a national problem, monumental levels of fragmentation across the EU's 28 member states would still rob European telcos of the scale enjoyed by U.S. peers such as AT&T Inc. and Verizon Communications Inc.


Meanwhile, Chinese operator China Mobile Ltd. dominates its home market with 885.56 million subscriptions, more than the entire population of Europe and worth a 62.7% share of the Chinese market, according to S&P Global Market Intelligence research.


"Europe needs to get comfortable with a reduction of players … we are spending far too much building parallel sub-scale networks," Mittal stressed, arguing that a number of previously blocked transactions in the region deserved to be revisited.


Observers have long argued that mobile consolidation in Britain, for example, would help smaller rivals meet the threat posed by BT, whose £12.5 billion takeover of operator EE, completed in 2016, gave it significantly more reach than its peers in terms of network presence and spectrum.


The deal created an industry giant with 32.5% share of the broadband market, 43.3% of the fixed-line market and 45% of all usable mobile spectrum in Britain, according to Ofcom figures published last month.


Europe's regulators, however, maintain that moving from four to three operators in the U.K. would lead to higher prices for consumers and reduce the incentive to boost network speeds. As a result, they blocked a proposed £10.25 billion merger of Three with Telefónica-owned O2 in 2016.


Despite regulators' recommendations, Bengt Nordström, CEO of mobile industry consultancy Northstream, said that having two or three operators would be the more "sustainable" route.


"Regulators would like to have four players in each market but this is a bit counter-intuitive," Nordström said in an interview.


"When you have such an imbalance in any market between the number one and number four player, then the only beneficiary in a four-player market is the number one player," he continued, concluding that "this goes against what the regulators wish to achieve."


Watch: S&P Global - Data Services


Watch: Power Forecast Briefing: Natural Gas And Coal Dynamics, Pressure On Nuclear, And Southwest Capacity

Jun. 20 2018 — Steve Piper shares his Q1 2018 analysis and power market insights along with guidance from our Power Forecast solution on the Market Intelligence platform. The next guidance report will be released around mid-July 2018.

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Technology, Media & Telecommunications
Bidding War Over Fox Could Spur Titans To Take A Look At Paramount Pictures

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Jun. 15 2018 — Potentially boosting its international portfolio and massively increasing the company's film and television library, Comcast Corp. on June 13 announced a $35-per-share cash bid for most of 21st Century Fox Inc., a 25% premium to the $28 per share offered by Walt Disney Co.

Kagan estimates that the Comcast offer values the Fox filmed entertainment division at $17.76 billion, nearly $4 billion more than the value placed on it in Disney's original bid. The transaction places the most value on the regional sports networks at more than $19 billion, or 24.2% of the total offer, with filmed entertainment coming in a close second at 22.4%.

While 21st Century Fox has close to a 16% share of the box office year-to-date, it has done better in prior years when big franchise films were in release. Comcast's NBCUniversal Media LLC would benefit greatly by adding the Fox studio to its portfolio. NBCU currently has less than a 10% share of the box office versus Disney's more than one-third share for its films.

The question is, who is next? Long-struggling Viacom Inc. missed a chance to sell a 49% stake in Paramount Pictures Corp. to Dalian Wanda Group Corp. Ltd. in 2016 at a valuation of $8 billion-$10 billion, an impressive number given the fact that the filmed entertainment division had negative operating income before depreciation and amortization of $328 million in fiscal 2017 and negative $407 million in fiscal 2016.

With the much-publicized showdown between Shari Redstone and Les Moonves over the future of Viacom, a sale of Paramount Pictures, all of Viacom or even a piecemeal sale of Viacom assets at high prices could help resolve this simmering feud.

Economics of TV & Film is a regular feature from Kagan, a group within S&P Global Market Intelligence's TMT offering, providing exclusive research and commentary.

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Technology, Media & Telecommunication
Judge OKs AT&T/Time Warner, Opening A Potential Bidding War For FOX Assets

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Jun. 14 2018 — A U.S. district judge on June 12 approved AT&T Inc.'s acquisition of Time Warner Inc. with no restrictions, which should open up the media M&A floodgates in a world that is increasingly moving toward digital consumption of content. First up to bat: competitive bidding for most of 21st Century Fox Inc.

Comcast Corp., emboldened by the decision that the merger did not violate antitrust laws, offered on June 13 to purchase most of 21st Century Fox for $79.17 billion in cash, a 19.7% premium to Walt Disney Co.'s stock offer of $66.14 billion, worth $68.36 billion based on the close of Disney's stock June 13.

On a cash flow basis, the deal would be expensive, at 14.1x 2018 cash flow, although this drops to less than 10x when $2 billion in synergies are factored in.

Although the offer from Comcast is attractive, we think a competing offer that allowed shareholders to choose cash or stock may have been more attractive to some shareholders that have a low basis in their shares. Since this deal was widely expected to be announced, Disney has had plenty of time to consider whether it will bid higher, and if so, if it will do so with a mix of stock and cash. Should the board decide Comcast has the better deal, Disney would have five days to come up with a counter offer.

As the table below shows, the regional sports networks are the most expensive piece of the company, valued at an estimated $19.14 billion in the Comcast offer.

Disney-Fox deal: What will the Department of Justice think?

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