Liberty Global plays down EU hopes of cross-border telecoms deals

The head of Liberty Global, once one of the most acquisitive global telecoms groups, said the European Commission’s interest in cross-border consolidation is “a dream that doesn’t reflect reality” as he extolled the company’s strategy of being in fewer and more lucrative markets.

Chief executive Mike Fries said even with recent indications that the EU is more favourable to mergers, such deals are “not going to happen” because it is “a dream that doesn’t reflect the reality of operating businesses”.

He added that the potential cost savings of being in multiple markets were marginal.

Liberty Global built a reputation under the leadership of “cable cowboy” John Malone for debt-fuelled dealmaking but the group has retrenched in recent years, exiting countries such as Germany.

Fries’ comments came a day after Thierry Breton, the EU’s internal market commissioner, said the commission needed to look carefully at the obstacles preventing cross-border consolidation which he saw as “holding back our collective potential compared to other continents”. 

Speaking at the global telecoms conference Mobile World Congress in Barcelona, Fries said that “you first need in-market consolidation before you can get anywhere near cross-market”.

Telecoms operators across Europe — which have suffered years of moderate returns and falling valuations — have long called for regulators to loosen their rules around mergers and acquisitions that would allow companies to grow.

But officials have tended to resist these moves, fearful that greater in-country consolidation will drive up prices and harm consumers.

The proposed merger of Orange and MasMovil in Spain is seen as a litmus test for whether regulators may be starting to change their tune and is being keenly watched by the industry.

Vodafone was one of the last bastions of the telecoms model of cross-border European expansion, having bought Liberty Global’s assets in Germany, the Czech Republic, Hungary, and Romania for €18.4bn in 2019.

But for the most part, as telecoms groups have struggled to capitalise on a digital revolution that has largely rewarded Big Tech, operators have sought to retrench.

Over the past six years, Liberty Global has slimmed down from owning 17 operators globally to just five today, in the UK, Holland, Belgium, Switzerland and Ireland.

“For the longest time we felt we could be a mile wide and an inch deep”, Fries said, but now “we’d rather be in a handful of markets and a mile deep”. 

Fries, who has been chief executive of the company since 2005, said he believed the fortunes of telecoms groups in Europe were starting to change.

“There’s going to be a good story over the next five years in this sector,” he said, pointing to evidence that companies have been able to increase prices in some markets, such as the UK, with limited pushback from the regulator.

Although politicians in Britain have railed against 14 per cent price rises this year, officials and regulators have not intervened to prevent the moves.

Fries also hit back against claims that some investors are taking advantage of weak European assets by buying stakes and angling for changes that may not be in the long term interest of the companies.

Franco-Israeli tycoon Patrick Drahi has built an 18 per cent stake in BT, while French billionaire Xavier Niel and United Arab Emirates telecoms operator e& have built a combined 16.5 per cent stake in Vodafone, on top of Liberty’s 5 per cent holding.

“These are not disinterested financial institutions. These are people who know the industry, know the assets, and that’s a positive thing,” he said, adding that Drahi, Niel and Liberty “come from the same DNA”.