To some observers, the mobile communications market in Europe is hidebound, rule-bound and stuck in its ways. Yet despite the obvious opportunities on offer in developing nations, the American communications giant AT&T appears to have a perplexing fascination with the old world. Even though it has now dismissed the idea of taking over the British firm Vodafone, many industry gossips still feel that AT&T is still mulling some kind of European invasion in the future.
There is some sense in such a strategy. If the American telecoms giant were to press forward with a Vodafone takeover at some later juncture, it would create a huge company worth about £150billion ($249billion) with a reach stretching across the continent. Seeing as Europe has been notoriously slow to take up 4G mobile broadband, there could be a huge potential windfall for any firm which can persuade the Continent to upgrade from hoary old 3G.
But once you take a look at the growth potential on offer in Africa or Asia, it becomes ever harder to see why AT&T would want to even bother working in Europe. In the developing world, the rate of mobile penetration is sitting at about 50% , figures from GSMA Intelligence have shown, with just one in ten of the population owning a smartphone. About 30% of people living in developing countries use the internet, with “much of this driven by mobile”. If internet penetration doubled to 60%, which is still a quarter lower than the 80% rate in the developed world, there would be an extra two billion mobile internet users on the planet – double the number which currently exist across the entire developed world.
These markets are also growing quickly. GSMA found that Asia and Pacific region will add 50% of all global mobile subscriptions from now until 2017, with the next 20 percent coming from Latin America. According to a study by the research firm Report Buyer, about half of all mobile phone subscribers already live in Asia. Both China and India have regularly seen upwards of 10 million new customers signing up for a mobile phone contract each month, the report continued, although uptake is starting to slow as markets become saturated.
In Africa, the adoption rate is even more impressive. A study released by the International Telecoms Union found that Africa is the world’s fastest growing mobile market, with phone usage increasing by an annual rate of 65% each year. Factor in a young population which is expected to grow fourfold in the next 100 years and the scale of the market becomes clear.
Yet rumors continue to circulate around AT&T and its stubborn fascination with Europe, even as it denies such interest. Sean Collins, CEO of CCS Insights, told me he would be surprised to see a US colossus make such a counter-intuitive pivot towards Europe, rather than Asia, but that he also thought the rumors had some credence.
“Why would you leave a lightly regulated, moderately competitive market like the US and come into one of the most competitive and regulated markets in the world?” he asked. “Also, we would think the sort of growth that would come in the Middle East, Asia and Africa is not possible in Europe.
“These developing markets have fewer regulations and fast growing economies, with a burgeoning middle class which will become much more wealthy in the next ten years. This may seem a little more attractive than Europe, which is a fragmented market that is heavily regulated at the local and supra-national level.
“Nonetheless, we heard so many many rumors last year, that it seems discussion of AT&T plans may be more than speculation and paper talk.”
In spite of the obvious pitfalls of the European mobile market, other analysts and industry leaders agree AT&T is still interested. Banking sources told Reuters that a $115 billion bid for Vodafone was still possible, as well as claiming that the NSA scandal had derailed the current bid. The prospect of a link-up between AT&T and the smaller British firm was also taken seriously enough to attract the attention of the UK Takeover Panel, which told the the American firm to make its intentions clear. Under British takeover rules, AT&T is now banned from launching a takeover bid for six months, although the two firms could get around this by announcing a friendly merger.
One more piece of evidence might be gleaned from AT&T’s CEO Randall Stephenson’s recent charm offensive in Europe, when he reportedly held meetings with Telecoms commissioner Neelie Kroes and competition commissioner Joaquin Almunia. At the end of 2013, he even said Europe was an “incredibly exciting” market filled with “huge opportunity”, particularly because its take up of 4G mobile broadband has been so sluggish. It seems unlikely that AT&T would go to all that effort if it had no interest in Europe.
“This [activity took place] despite currently having no exposure to the European Telco space, suggesting to us a strong interest in acquiring a European presence,” wrote Akhil Dattani of JP Morgan in a briefing note.
AT&T’s continued interest in Europe is likely to hinge on two other factors, Dattani continued. Firstly, it depends on whether Eurocrats allow the merger of Telefonica Deutschland and E-Plus to go ahead. If this scheme is given the green light, it could open the way for AT&T to begin building a pan-European network, although it is far from clear Brussels would ever allow AT&T to do this. Brussels is also currently carrying out a review of the European Single Market, which could result in beneficial changes to the way spectrums are sold off.
If Stephenson is actually thinking about getting involved in Europe, he will be hoping that customers decide to belatedly begin using 4G. Seeing as the mobile penetration rate in Europe is the highest in the world, with about 80% of the population owning a smartphone, a mass shift to 4G would be extremely lucrative . Best of all, this looks almost inevitable, particularly if the European economy starts to recover. Some predictions suggest that half of all European mobile subscribers will be using 4G by the end of 2014.
However, seeing as AT&T has ruled out taking over Vodafone for the time being, there is uncertainy about which other European company it would seek to purchase.
“It is unclear to us which other European Telcos could provide suitable alternative targets for AT&T,” Dattani added. “Based on press reports, historically AT&T Telecom Italia[/entity] in 2007, Deutsche Telekom in 2011 and Telefonica (2013), but had to drop its interest due to local government opposition. There were also recent press reports linking AT&T with EE and Orange, however these assets do not seem to offer the pan-European wireless scale AT&T seems to be targeting.”
It seems unlikely that rumours about the European ambitions of AT&T will die down any time soon. But questions about the wisdom of this strategy – whether it exists or not – will continue to rage. It remains to be see whether the old world is any place for an ambitious firm like AT&T.