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Revitalizing Europe’s Overlooked Telecom Sector: The Impact of Mergers and Acquisitions

MILAN (Reuters) – The telecoms sector in Europe is currently under scrutiny due to a series of potential deals that could lead to consolidation and potentially improve profit margins in the industry.

Years of neglect from investors have left European telecoms stocks at historically low levels compared to the overall market. The market capitalization of Europe’s telecoms has plummeted by six times since the early 2000s, now standing at $270 billion.

Fabio Caldato, a portfolio manager at AcomeA SGR, expressed optimism about the impact of mergers and acquisitions (M&A) in reviving interest in the telecoms equity sector. He highlighted the potential for cross-border M&A activities to reduce competition and enhance margins for telecom operators.

Vodafone recently entered exclusive negotiations to sell its Italian business to Swisscom for 8 billion euros, signaling a wave of potential transactions in the pipeline. Analysts view these developments positively, with expectations of creating stronger market players with increased market share and operational synergies.

Industry experts suggest that consolidation in the telecoms sector could alleviate the intense competition, enable cost-saving opportunities, and facilitate technological and infrastructural advancements through collaboration.

Telecom Italia’s strategic move to sell its fixed-line network to private equity firm KKR for up to 22 billion euros is seen as a transformative deal that could alleviate the company’s debt burden significantly.

In Spain, Orange and MasMovil received conditional approval for their 18.6 billion euro merger, while Iliad, backed by French billionaire Xavier Niel, acquired a substantial stake in Sweden’s Tele2, indicating a trend towards consolidation in the sector.

Market analysts believe that markets in France, Spain, Italy, and the UK present attractive prospects for telecom companies, especially those that have heavily invested in network upgrades.

While there are discussions about potential regulatory changes to facilitate mergers, the European Commission has not indicated any immediate plans to relax merger rules, according to Margrethe Vestager, the antitrust chief in Brussels.

Despite the historical underweight position of investors in European telecoms, recent data shows an increasing interest from global funds, with a growing percentage of funds overweight on telecom stocks.

European telecoms have underperformed the broader market in the past year, trading at a discount on a forward price-to-earnings basis, indicating potential value opportunities for investors.

($1 = 0.9237 euros)