Incumbents still major force in Europe, but are crippled by huge debts

The move to open up the European telecom market to competition has not been as successful as expected, a recent conference on telecom competition in Canada was told. ILECs still dominate, although their debt load has weakened them financially. Frédéric Beauvais of A.T. Kearney Inc.’s communications & high tech group was speaking at the View From Europe session at the Celebrating 10 Years of Telecom Competition in Canada conference in Toronto last month. He said the European industry is facing declining growth due to high penetration and decreasing prices. The telecom services market is concentrated in six nations, with Germany, Britain, France, Spain, Italy, and the Netherlands accounting for 78 per cent of the market. Wireline still provides the major share of revenues for western European telcos, but wireless has been increasing its proportion of the market (see chart). While fixed line penetration is projected to edge up to 65 per cent in 2004 from 56 per cent in 1999, wireless penetration is expected to soar to 77 per cent two years from now from 40 per cent in 1999. Investing in wireless licences and merger & acquisitions in order to become pan-European providers has hit telecom providers severely on the bottom line, as all the major ILECs are carrying huge debt loads. Beauvais presented figures showing Deutsche Telekom has estimate net debt in 2002 of 62.6 billion euros (about Cdn$93.5 billion); France Telecom has a debt load of 59.7 billion euros (around $89 billion); and Telefonica faces 26.7 billion euros in debt (nearly $40 billion). Also taking part in the session was Michael Ryan of the law firm Arnold & Porter. He said competition in Europe is limited due to the high cost of leased lines, the slow rollout of DSL, and problems with the national regulatory authorities (NRAs). While a 5-km 34/45 mbps circuit leases for just under US$2,000 per month in the United States, European CLECs can expect to pay more than US$7,500 for the same connection. Among major European nations, DSL penetration is highest in Belgium, where it is a paltry five per cent of total subscriber lines. In most countries the incumbents dominate the DSL market, and cable broadband has yet to develop as an alternative, Ryan stated. The European Union sets broad telecom policies, but the NRAs have the task of actually implementing those policies. The EU is hoping to coordinate policy among the various regulators in the member nations, Ryan added.

Incumbents still major force in Europe, but are crippled by huge debts

News | July 3, 2002

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