European Mobile Operators are Retrenching

Deutsche Telekom is considering exiting its ventures in the UK and The Netherlands next year, according to sources who spoke to Financial Times Deutschland Deutsche Telekom is not alone. 


Other European mobile service providers, including KPN, for example, are looking to divest assets that now have become "non-core" holdings, though cross-border expansion has been an important growth strategy over the last couple of decades.


The "grow through acquisition" and "grow outside the footprint" strategies have been important for fixed network telcos and cable companies as well, for obvious reasons. The fastest way to gain revenue often is to "do what we do, in more places," or "buy an asset to get bigger." 


What has happened, though, is that it makes less sense to invest in highly competitive Western European mobile markets, and much more sense to invest in faster-growing markets in Eastern Europe and Central Europe, as well as other regions. 


DT originally had hoped to parlay its sale of T-Mobile USA into investment in Central Europe and Eastern Europe, for example. Having failed to do so, DT now must reinvest in the U.S. market where it trails AT&T, Verizon Wireless and Sprint, in precisely the sort of market it now wishes to avoid, namely highly-saturated developed markets. 


Though many believe DT still would eventually prefer to divest the U.S. assets, that seems unlikely in the near term. Regulators seem to have signaled that the U.S. mobile market already is not competitive enough, so none of the three larger national operators likely would be allowed to buy T-Mobile USA. 


Cable companies, in theory, might have been considered buyers, but a few key leading firms, including Comcast, Time Warner Cable and Cox Communications, seem to have decided to partner with Verizon Wireless, which takes them out of consideration as buyers. 


The larger point, though, is that a growth strategy that made sense a decade ago has ceased to make as much sense, given higher growth opportunities elsewhere.