European Telecom Sector Looks To Technology & M&A For Growth In 2019

EC opens probe into Vodafone's proposed tie-up with Liberty Global's business in the Czech Republic, Germany, Hungary and Romania

The European telecommunications industry has been challenged by host of headwinds in 2018, including slowing economic growth and regulations, as companies eye innovation and M&A-driven strategies in the year ahead.

Telecoms have been generally suffering from slowing growth across the European continent, with economic sentiment squarely in negative territory.

Sentiment about the Eurozone’s economy rose by only 1.0 month-over-month in December to -21.0 – its worst level since August 2012, according to ZEW. Moreover, the current economic situation fell a further 6.1 over the same period to 12.1, while pessimism about inflation also grew.

European Central Bank president Mario Draghi said before the European Parliament’s Committee on Economic and Monetary Affairs in late November that while a slowdown in euro area growth mainly reflects weaker trade developments, it is also related to some country and sector-specific factors. Also, employment is expected to slow somewhat as labor supply shortages become more binding.

Meanwhile, although underlying inflation measures have inched up from earlier lows, they continue to be muted. HICP inflation increased to 2.2% in October 2018 from 2.1% in the prior month.

Draghi highlighted that significant monetary policy stimulus is “still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term.”

At its previous meeting in late October, the ECB left its key rates unchanged and said would make net purchases under its asset purchase program at a new monthly pace of €15bn until the end of December 2018, when the program itself is due to end.

Emerging 5G

Against this backdrop, several European telecommunications companies have been increasingly exploring novel approaches to growth, amid fierce competition.

Telcos have been generally ramping up their efforts to achieve an edge in rolling out nationwide 5G networks, which are widely expected to open up a vast array of services, including broadband, mobile and Internet of Things (IoT), while providing the necessary bandwidth and low latency for 3D and virtual reality (VR) applications.

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Disclosure: The author does not hold any positions in the financial instruments referenced in the materials provided.

The analysis in this material is provided for information only and is not ...

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