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Pallete stands up in the fight for regulation after the rise in income

Date: March 30, 2023 Time: 11:00:13

The “voyage” in the desert of the change in the model of the telecommunications companies (also Telefónica) has been left behind. María Álvarez-Pallete has relaunched the regulatory battle after several attempts without much success in the past, when the pandemic and the war forced to prioritize the maintenance of accounts Hardens the message against the CNMC, which is urged to make an “amendment to all” of its rules, and against the European Commission, which is asked to force the giants ‘tech ‘to pay for the networks and to authorize the merger of Orange and Másmóvil in Spain without any conditions.

“We had been falling in revenue for a long time.” The year 2022 marked a first floor: it was the first time in seven years that the annual income of the group grew. It is what the CEO himself described as a “journey” in the desert in the telecommunications market: the transition from a world of voice to a world of data, with a significant drop in revenue for the first and an increase in the second that did not compensate. To this was added an “artificial competition” created by the ‘rules of the game’ and the use of new networks to respond to a flood of traffic. Now that the business begins to recover a certain tone, after the ‘shock ‘ of the Covid and the invasion of Ukraine, the chief executive focuses on regulation as the necessary ‘push’ to accelerate and “bring rationality back” to the sector.

One of the fronts of this regulatory battle is that of infrastructure financing. What in English slang is known as ‘fair share’. In practice, it is the requirement that the technological giants that are the most ‘consumers’ of Internet broadband pay a price for its exploitation. Álvarez-Pallete assured the analysts that the traffic of the six large groups – among which are companies like Netflix – consume up to 70% of the traffic. He was pleased that the European Commission started a public consultation process for the creation of this potential financial figure.

This consultation already puts on the table the debate on the financing of the networks, historically claimed by the sector. It represents a “potential change” on the playing field. But not only because it will deal with a historical claim, but because, as explained by the executive president, it will not be analyzed who should pay and what they are going to pay for. In other words, characteristics are the networks that the regulator wants and how the objectives can be achieved by deploying them more efficiently in the different countries. In this task, the operator embraces the Commissioner for the Internal Market, Thierry Breton, (former chief executive of France Telecom and the technology company Atos) as an ally compared to his counterpart in Competition, Margrethe Vestager, much more inflexible and less permissive with the consolidation and mergers.

Another of the flanks that it attacks is the consolidation of the market. The CEO gave analysts new data to justify the fragmentation: the average European mobile operator covers 5 million people, while its US counterpart covers 107 million. “The situation is unsustainable and even more so with data volumes growing by 30% every year,” he added. He understands that the union between drivers from the same country should be encouraged, since precisely the current fragmented regulation leads to very limited synergies of telecom operations from different countries (there will be no cost savings such as the radio spectrum). That is why he defended the authorization “with minimal ‘remedies’ or without ‘remedies'” of the merger of Orange and Másmóvil. “It is an operation that will affect us but the time has come for a more rational approach,” he concluded.

Beyond the union of the two rivals, Álvarez-Pallete puts his finger on the Spanish sore. His relationship with the National Commission for Markets and Competition (CNMC) has not been particularly fluid in recent years. On this occasion, the chief executive went further and endured the message, calling for an amendment to the entire Spanish regulation, where Telefónica continues to be treated as the former incumbent monopoly with very relevant wholesale obligations, especially in the networks. “In most cities there are three fiber networks already deployed; this regulation was created to make them lose market share and they have managed to have three networks, but now it has become obsolete,” the executive points out.

It makes a total amendment to the CNMC, which requires that it not require other restrictions on pay TV and that it eliminate obligations in fiber or in access to civil infrastructure

The case of pay television regulation is paradigmatic. In April, the ‘remedies’ required after the purchase of Digital+ -among others, the wholesale access of its competitors to all sports rights and premium content- will end. And the pressure does not cease so that there are no new limitations. “We do not expect any regulation on pay television; there is no condition that authorizes the CNMC to intervene”, explained the Secretary General and of the Board of Directors and Global Director of Regulation, Pablo de Carvajal, who defended that with the consolidation of Netflix, HBO or Disney, your position is not dominant. Apart from the audiovisual business, he understands that it does not make sense that the fiber optic market is also regulated or that there is an asymmetric obligation of access to civil infrastructure that, in practice, “a conductor is being subsidized because it is sold below of the costs”.

Other corporate operations

“There must be a distinction between those who invest and those who do not invest,” the company warned. Pallete himself provided information: European operators invest between They understand that there is a certain change of sentiment in Brussels. But this has yet to develop into anything more than gestures that have not yet led to deregulations or major rule changes. The public consultation for the subsidy of the networks still has many months of management ahead of it and several years of agreement between countries until a definitive agreement is reached.

Beyond regulation, the company seeks to keep some corporate operations alive to extract more value after the frenzy of the last two years. As for towers, the only great asset that it has left is 50% of the shares of Cornerstone, the manager that it shares with Vodafone. “We have all the options; it is a very attractive and very unique asset,” explained the open CEO, Ángel Vilá. Regarding fiber, he analyzed partners to create a fiber company (fiberco) in Peru and Argentina. They are also open to the acquisition of small managers in trouble due to the change in macroeconomic conditions in different markets.

As for Latin America (Hispam), the non-priority market for the telecommunications company, they remain open to consolidation or divestment to “create value”. As in Europe, in some markets there are mergers and acquisitions of local operators. Valuations are still impacted by the current situation and that is one of the reasons why there are no more movements. In the Tech division, which has grown by close to 30% without counting the acquisitions carried out, they continue to delay the entry of potential investors while they consolidate their independent income statement. There are no deadlines.

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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