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EU Report Calls for Telecom Consolidation, Strong Energy Market

In World
April 16, 2024

(Bloomberg) — The European Union should consider consolidation for telecom operators as a way to improve the bloc’s mobile and fixed networks and should further integrate its energy markets, according to a report it commissioned on competitiveness.

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The concession on telecom, which is part of a report former Italian Prime Minister Enrico Letta is presenting to EU leaders on Wednesday, is a win for operators that have argued for years that the sector is ripe for mergers in some countries to provide the growth and scale necessary to fund network upgrades.

“Due consideration should be given to the necessity of some level of consolidation within national markets or strategic alliances between market players including pro-competitive sharing of investments in key network elements,” the document said, according to a draft seen by Bloomberg.

On energy, Letta said the EU should further integrate its market through steps such as developing green bonds and joint purchases of critical minerals. That would help it gain the leverage and economic weight needed to ensure secure supplies and keep businesses investing in the region, he wrote.

Letta’s report only addresses issues within the EU’s single market and doesn’t by itself change any regulations or competition policy. Bloomberg reported earlier that he will also suggest that EU leaders consider amending the bloc’s strict state-aid rules by creating a new mechanism to fund projects that span across member states

Telecom Concerns

Telecom operators are hopeful the next European Commission, which will be formed after the bloc’s elections in June, will propose a new law that takes on these concerns.

While regulators insist there is no magic number of firms in national phone markets, deals cutting competition to three companies in a country have often struggled to win approval. That situation has frustrated companies seeking to scale-up operations across the 27-nation EU and recoup massive investments in infrastructure and wireless spectrum.

There have been signs that the rules are changing, however. Orange SA’s Spanish unit and Masmovil Ibercom SA won conditional approval this year to form the country’s biggest operator.

The commission earlier this year published another report that detailed issues with the EU’s telecom market and addressed how operators are failing to make a return on their network investments. That paper did not encourage in-market consolidation but rather proposed cross-border mergers to create pan-European players.

The commission has been too favorable to new market disrupters, according to the draft report from Letta.

“Today, keeping the focus only on pro-entrant regulation, would be detrimental for a technology switch towards advanced networks that require massive investments,” the report said.

Energy Risks

As the 27-nation EU emerges from an unprecedented energy crisis and faces new geopolitical risks and toughening international competition in clean technologies, it cannot lose time, Letta wrote.

“No single member state can compete with the US on gas or oil prices, as they are the world’s largest fossil producer,” the draft said. “Nor Europe can replicate some advantages that China’s state-controlled economy can deploy. But the EU has a continental scale energy market united by a modern, sophisticated regulatory framework unmatched around the world.”

In order to deepen the integration and make Europe’s diverse systems a competitive asset, the region needs to muster the political will and take some decisive steps, it said. Letta’s recommendations include:

  • Adopting a cross border cost benefit allocation methodology to build trust for regional offshore wind projects – by 2025

  • Developing cross-border systems for procuring flexibility and joint auctions for renewables – by 2025

  • Developing green bonds to support energy infrastructure projects – within the next legislature.

  • Revising the EU gas supply security framework – by 2025.

  • Set up a mechanism for joint purchasing of critical minerals – by the end of the next legislature

  • Setting up a Clean Energy Delivery Agency and a Clean Technologies Development Fund – by 2027

  • Adopting a proposed law on energy taxation as soon as possible

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