E.VEN BY ITALY’S chaotic standards, Tim Group, the country’s largest telecommunications service provider, is a strange beast. There have been five CEO changes in the last seven years. The company has amassed net debt of more than €25 billion ($27 billion), making it the most indebted of Europe’s major telecom companies. And now, to lighten the load, we want to do what our peers aren’t doing by selling our main asset, our fixed network. When Pietro Labriola Tim‘s latest new boss explains the spinoff and he won’t beat his surroundings. Debt burdens are being squeezed as interest rates rise.All three major rating agencies scored Timof debt is below investment grade. Selling the fixed network, which is expected to be worth more than €20 billion, is “the most obvious way to regain industrial choice.” The offer was due to be submitted by June 9th.
Tim is an extreme case. But the move reveals a lot about where Europe’s hyper-fragmented telecommunications industry is headed. There are only a handful of carriers in the US and China. In Europe he has over 100 companies. Some are local subsidiaries of large companies, but still compete in a patchwork of domestic markets.If more European carriers follow suit TimBased on the example in , we separated the fixed network from other assets. Perhaps this “delay” could, ironically, be the first step towards integration.
The recent history of European telecommunications is one of grand ambitions. Most failed spectacularly. Over the past two decades, many of the companies in this sector have become large consolidators. They provide all kinds of services to both consumers and businesses around the world. Together, their annual revenues exceed €265 billion. Some have dabbled in technology and media, trying to be more than just network operators, only to find themselves ahead of both US digital giants and upstarts.
Economically, there is no more beautiful story. In the early 2000s, carriers paid a lot for her three services.G. radio spectrum. Some (maiden name France Télécom and Deutsche Telekom nearly went bankrupt. To save them, regulators let them make huge profits for several years, then stifled them again with pro-competitive measures such as licensing new entrants and capping roaming charges within Europe. James Lutzer of New Street Research, an equity analyst firm, explains. boutique. At the same time, telecom companies were expected to increase investment in fixed and mobile networks. Their bosses are frustrated by the amount of data that America’s digital giants, from Google to Netflix, are feeding consumers. They say big technology generates more than half of all internet traffic, but does nothing to build the infrastructure. (The European Commission has started consultations, the results of which will be available soon.)
All of this has resulted in the division’s average return on capital employed dropping from a healthy 18% to just 8%, according to The New Street. They managed to run tons of fiber optic cables from Sweden to people’s homes, including in remote villages, but low revenues may have prevented them from deploying five fiber optic cables. be.G. Enable mobile networks as fast as the United States and China. Less competition these days has allowed carriers to raise prices. Yet investors remain wary. Telecommunications stocks lag behind nearly every other sector in Europe.
A postponement may be the industry’s best chance to save it from a profitless wasteland. O2 Czech Republic, which was split into a network company and a services company after being acquired by a private equity fund in 2014, has nearly doubled in value for the two parts combined, according to consultancy McKinsey. . Tim is a much larger company and thus a larger test case.The head of a European telecommunications company pays attention to TimWe’ll take it apart carefully. After selling the fixed network, Labriola plans to focus his lamp company on three businesses. Each business must be financially self-sustaining. Cloud computing service for corporate customers. and major foreign subsidiaries, Tim Brazil. If he succeeds, rivals will be tempted to follow him.
Many companies, such as Orange, have already split internally into separate business units that offer a variety of services, from cloud computing to network access. Some radio towers have become independent. Separation becomes easier as the network becomes controlled by software. Investors will be able to pick a telecom pie that fits their risk appetite. Some may prefer the predictable economics of fixed networks. KKRThe American private equity giant is ready to invest at least €20 billion. Tim(The second bidder is the state-owned bank Cassa Depositi e Prestiti, which owns 10% of the shares) Tim Italian government control will be strengthened). Some may prefer a more risqué mobile business.
As Labriola points out, it used to be Timhas a segregated fixed network, and regulators are likely to allow him to combine his mobile business with that of another carrier. In fact, the industry is redoubled efforts to persuade commissions and national competition authority trustbusters to merge more companies.Expectations of consolidation may explain why Frenchmen Patrick Drahy and Xavier Niel scary kids Many European telecommunications companies increased their stakes in two British telecommunications companies in financial difficulty. BT and Vodafone, respectively. An early test is a proposed mobile marriage between Orange and Massmobile in Spain, with a decision expected later this year.
Some of the lamentations of European telecom executives that market fragmentation is squeezing capital spending are selfish. Fragmentation has not prevented us from building powerful fiber networks that can be more expensive than mobile networks.Europe may follow America on the 5thgBut continental fiber optic coverage is now much better than across the Atlantic. Many of Europe’s telco problems stem from attempts to overreach. If they are aware of this and the delay, Brussels needs to give them some leeway. ■
Read more from global business columnist Schumpeter:
Australia and Canada are one economy, but they have some flaws (June 1)
Why tech giants are trying to strangle AI in a bureaucratic waye (May 25th)
America’s Culture Wars Threaten Single Market (May 18th)
https://www.economist.com/business/2023/06/08/what-tims-mega-spin-off-reveals-about-europes-telecoms-industry What the TIM Giant Spinoff Revealed About the European Telecom Industry