According to rumours gathered and published by the Financial Times, the representatives of the biggest ex-monopolist telcos (Orange, Telefonica, Deutsche Telekom, Telecom Italia ecc) met with Joaquìn Almunia, European Commissioner for Competition, suggesting the idea that the creation of a centralised telco newco would resolve investments and competition problems in Europe.

It is worth-noting that the main scope of the meeting (hold on November 28, 2012 by the way) was different: the big telcos have been asking Almunia to ratify, or at least not to oppose, the envisaged regulatory reform announced by commissioner Kroes last July and published in December.  The ex-monopolist are strongly supporting such a reform, while alternative operators and consumers fear, by contrast, that such a reform will kill competition in the market and lead to re-monopolization. Fact is, the Kroes reform presents many potential conflicts with basic competition principles (such as the mandatory subsidy from copper networks to fibres networks, at exclusive advantage of ex-monopolists), therefore it will be interesting to see what Almunia and his officers will have to say about.

Apart from above, it is surprising to see that the big European telcos consider market fragmentation as a big problem for their business. This position is astonishing because, in the reality, the business of European ex-monopolists is based on country fragmentation. Let’s try to understand why.

Firstly, there is no rule impeding European telcos to open a business in whatever of the 27 European country and compete. However, at least in the fixed sector, this does not happen for the ex-monopolists, which prefer to stay home and enjoying domestic monopolistic profits. Eventually, they can buy another ex-monopolist abroad (like Telefonica in Czech, Orange in Poland, Deutsche Telekom in Hungary and Greece). However, such a move does not bring competition or consolidation, because the 2 incumbents continue to run separately the distinct businesses. Did the Greek consumers see any difference in the market when OTE was bought by Deutsche Telekom? Or did Italians get any benefits when Telefonica bought a stake in Telecom Italia?

There are few exceptions to the above: Orange (in Slovakia, Belgium, UK and Spain) and Telefonica (in Germany, but next to sell and leave). It is worth-noting that such “off shore” operations are legacies of the 2000 scenario, when most of the ex-monopolists tried expanding abroad relying on the expectations promised by the Internet bubble. However, in the last 10 years this trend was dramatically reversed: ex-monopolists have been selling everything abroad and concentrating in their domestic market. I really do not remember the last time when an ex-monopolist entered a foreign market and disturbed the local incumbent, it was lot of time ago.

The reasons for this domestic-centric approach are both competitive and regulatory: for an ex-monopolist, it is easier to play as a dominant operator at home or abroad (if it succeed in buying another incumbent), while it is a risky business if it tries to enter a new market and compete with another incumbent. Fact is, competing abroad would require the construction of a new network or negotiating access with a local incumbent, and the ex-monopolists prefer to remain on the safe side.

To sum up, the European fragmentation allows ex-monopolists to carry on a territorial cartel which otherwise would be normally prohibited by antitrust law.

The situation is similar, but more tricky, in the mobile sector. Unlike the fixed sector, the grant of 4-5 national licences encouraged mobile operators to move abroad. However, the European fragmentation remains the same, and the evidence of that is shown by the international roaming business.  Many international operators (Orange, Telefonica, Deutsche Telekom, ecc.) present in various countries could eliminate roaming tariffs and offer services with a unique pan-European tariff, since their customers would remain on the same network. However, such operators continue to charge roaming tariffs, and they justify such fees on the excuse that their customers is abroad (but on the same network, nevertheless!). This means that the European fragmentation is not a problem. By contrast, the European fragmentation is the business.

This said, why bringing the bluff up to Almunia? The main reason is political: if Almunia gives the green light to the incumbents-welcomed-Kroes-reform, then they could offer something in exchange (but just a sign: there is no reason to lose the benefits of the European fragmentation). In addition, ex-monopolists would like to have free-hands when the Kroes reform will become operational and various smaller operators will be forced to leave the market. Incumbents would like to buy such operators and reinforce national consolidation, possibly without suffering the antitrust control they faced in Austria and Switzerland. It is doubtful that Almunia will help them on this, however they will try. Finally, the envisaged network-newco will not change, in any case, the competitive scenario, because in each country consumers will continue to face the same monopolistic network. A Belgian consumer, for instance, will get Internet from Belgacom at certain conditions, and when moving to France will have to subscribe from Orange at different conditions. The fact that the 2 networks may be controlled by the same newco will not change the consumer perspective and experience. This is what ex-monopolists like: to pretend to change everything, while making sure the nothing changes.

UPDATE January 10, 2013: The porte-parole of Almunia officially denied that the project of European network was discussed at the meeting of November 28, 2012. Considering the price increase of the listed telcos’ shares following the FT article, I believe that the stock exchange authorities should investigate ……

UPDATE January 16, 2013: the CEO of Orange, Stéphane Richard, has officially denied the existence of a plan for a European network, confirming that the news published by FT were not grounded