EU Should Let Mobile Operators Merge, Draghi Report Says

(Bloomberg) -- The European Union should encourage more mergers in the telecommunications sector, according to a long-awaited report written by former European Central Bank President Mario Draghi on how the bloc can keep its economy competitive. 

“Facilitating consolidation in the telecoms sector is needed to deliver higher rates of investment in connectivity,” the report, released Monday, said. “The cornerstone initiative is modifying the EU’s stance towards scale and consolidation of telecoms operators to deliver a true single market, without sacrificing consumer welfare and quality of service.”

Draghi, a former prime minister of Italy, said regulators should focus less on blocking country-level consolidation before there are competition issues and more on scrutinizing mergers when there are signs that companies are abusing their dominance. He added that innovation and investment commitments should be considered when weighing possible mergers. 

European telecom operators have pushed for in-market consolidation for more than a decade, arguing they are unable to achieve the scale in each country to make a return on capital. However, consolidation faces an uphill battle in in the bloc because it requires a change in the EU’s competition rules, which requires backing from its member countries. 

A commission paper earlier this year acknowledged the issues operators face in achieving scale and proposed cross-border consolidation as a solution. Operators argue there are few benefits to pan-European consolidation, as markets and regulations differ between countries. Companies like Vodafone Group Plc, for example, have been exiting some EU markets in an effort to drive profitability.

Draghi also recommended harmonizing spectrum policy and auction design at an EU level. He also suggested creating a public-private EU-level group to ensure European operators remain at the forefront of innovation. 

European Commission President Ursula von der Leyen asked Draghi to write a report on the future of EU competitiveness about a year ago. She will now need to decide how many of his recommendations to pursue. 

“Draghi rightly identifies the lack of scale in telecoms, outdated competition policy, poor spectrum allocations and persistent imbalances in digital ecosystems as key reasons for Europe falling behind,”Joakim Reiter, Vodafone’s chief corporate affairs officer, wrote in a statement. “The responsibility now lies with the Commission to transform the regulatory framework for telecoms.”

(Updates wtih Vodafone comment in eighth paragraph.)

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