Are Europe’s mobile operators retreating to their homelands?

When the EU member states opened up their respective telecom markets to competition, they hoped that mobile operators would cross borders, invest and compete outside their home countries. That happened in the 1990s when companies such as T-Mobile (a subsidiary of Deutsche Telekom) and Orange (a subsidiary of France Telecom) began offering cellular service in the Netherlands, the UK, Belgium, etc. The goal of the European Commission was to create a more competitive market across the EU, so that incumbent operators in each country would feel the fierce heat of competition from their cross-border counterparts. For a while that seemed to be happening. The Netherlands, for example, where KPN Mobile is the incumbent, experienced the entry of Orange and T-Mobile, subsidiaries of large European telcos, and Dutch customers enjoyed an unprecedented level of competition in the cellular market. A decade later, Orange has left the Dutch market; it sold its Orange subsidiary to T-Mobile Netherlands. I was an Orange customer, and was turned over to T-Mobile Netherlands.

This week Reuters reported that Deutsche Telekom’s T-Mobile may be selling its British and Dutch subsidiaries. In countries such as the Netherlands, this would mean that Dutch customers will have even fewer options, especially if T-Mobile Netherlands is sold to KPN Mobile. I may end up in the arms of KPN Mobile after all.

KPN, the Dutch operator, has not been doing well either. It is considering the sale of its Belgian subsidiary called Base (the 3rd largest operator in Belgium with a 26 percent market share) and its Spanish subsidiary, Simyo. Last year, KPN already sold its French subsidiary (KPN France) to Bouygues Telecom.

What’s happening in the EU mobile telephony market is this:

(1) Although each EU member state opened its telecoms market to carriers from other EU member states in the 1990s, each country’s incumbent has remained No. 1. Neither the French nor the Germans have managed to dislodge KPN Mobile from its top spot in the Netherlands in terms of market share, even though France Telecom and Deutsche Telekom are significantly larger companies than KPN in terms of revenue and customers. Similarly in Belgium, KPN has not managed to grab the top spot from Belgacom.

(2) Declining revenues are forcing mobile operators to slim down. Declines in voice and SMS traffic, EU regulations forcing the operators to dramatically drop roaming charges in the European Union, and the rise of the iPhone (and other smartphones) have all contributed to a tougher competitive landscape. What you see is an industry that is rapidly consolidating with national markets being dominated even more by the local incumbent.

The dream of the EU telecoms authority of a truly open competitive integrated market with numerous players from different member states may be just a short-lived dream. Although most discussion centers around the breakup of the Eurozone, one should also worry about the retreat of Europe from an integrated community into separate bunkers dominated by the same local incumbents.