UK telecommunications watchdog Ofcom has opened the way for a wave of industry consolidation after taking a more dovish stand in a new discussion paper. This could have direct implications for Vodafone (VOD) and its chances of pulling off the acquisition of rival network Three.
Vodafone’s chief executive Nick Read renewed his call earlier this month for regulators to rethink rules on industry consolidation given the need for reliable and fast communication networks, prompting the industries regulatory bodies to re-evaluate the value of investment in the space.
CONSOLIDATION CHAMPION
Read has been an advocate for consolidation for a while, and has suggested that if this doesn’t happen soon, European firms will fall behind US and Asian service providers.
Reports emerged last month that Vodafone held talks with CK Hutchison around a merger of Vodafone UK and Three UK late last year. Reed said that Covid has opened the eyes of policymakers to ask ‘have we got this right?’ following Vodafone’s quarterly results on 2 February 2022.
‘I argue there needs to be a new balance. Of course, we want competition but at the same time, we need to encourage investment in next generation infrastructure to remain globally competitive,’ Reed said.
‘We think that Ofcom’s document suggests a softened tone and sounds potentially open to the idea of consolidation,’ said Berenberg analysts in a note on Thursday (10 February 2022).
BT TAKEOVER TALK
A more dovish Ofcom could also see BT (BT.A) look at consolidation. The owner of the UK's largest network EE, it has been talked about in recent months as a target after Patrick Drahi, the French billionaire and founder of Altice, began building up a position in the company through 2021.
Drahi currently owns a 12.1% stake in BT, which he bought this summer through the entrepreneur’s new vehicle Altice UK, making him BT’s largest shareholder ahead of Deutsche Telekom which owns 12.06%, a stake Drahi has said he would be interested in acquiring, although he has so far distanced himself from launching an all-out bid for the UK telco.
BT shares have risen more than 15% so far in 2022 and nudged to a year to date high of 199.25p on Thursday. Vodafone rose more than 1% on Thursday to 140.94p, also a 2022 peak and the stock’s highest since May last year.
