A Rebound in the European Telecom Sector? Market Talk 2021
The European telecom sector has seen its ups and down over the past five years largely due to price wars and expensive network developments. The Stoxx 600 telecom index lost 15% of its value in 2020 against a 4.3% decline for the broader benchmark. Jeffries reported that European telecom shares lagged significantly behind last year's market and were the fifth worst-performing sector. That said, things may be looking up for EU telecom in 2021 and beyond.
Rays of hope
Despite years of struggle for telecom, consumers have shown promising signs that they aren’t shopping around for better deals with new carriers, indicating stability for some companies. Additionally, loss of roaming income resulting from pandemic travel restrictions may likely be reversed; and telecom companies are beginning to show willingness to increase service costs, says Jefferies.
The rise of 5G
The pandemic has shed light on the value of better, faster networks with more people carrying out their work and studies from home. Investing heavily in 5G, the US and Asia threaten to outpace Europe in terms of connectivity and competitiveness. These concerns have boosted motivation within the EU to expand its fifth-generation networks. According to Thomas Fitzgerald, manager at EdenTree Investment Ltd., the public interest in 5G and the investment opportunities it promises are likely to attract a lot of attention from the private sector. Perhaps most exciting, is that the next generation of wireless broadband is expected to facilitate the development of smart cities and factories. But 5G is an expensive investment for carriers.
M&A may be the answer
Some see a promising possibility that the historically tight restrictions on EU M&A could loosen. There are signs that the European Union's resistance to mergers could ease after its antitrust chief called for more cross-border transactions, especially in the telecommunications sector. Apart from major deals such as the Cellnex Telecom SA tower, 2021 has already seen other promising activities among European telecom. Bids for TalkTalk Telecom Group, Altice Europe NV and Masmovil Ibercom SA, as well as Liberty Global PLC's purchasing agreement for Sunrise Communications Group AG, represent optimistic developments in the EU telecom industry for years to come.
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