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European telcos will have to decide between vertical integration or horizontal disintegration, says GlobalData

European telcos will have to decide between vertical integration or horizontal disintegration, says GlobalData

by Anthony Weaver

The European telecommunications industry is facing a complex set of challenges, leaving C-Suites with difficult decisions to make. Against this backdrop, European telecoms companies will need to choose between vertical integration or horizontal disintegration to navigate these challenges, says GlobalData, a leading data and analytics company.

Robert Pritchard, Senior Enterprise Technology and Services Analyst at GlobalData, says: “Interventions by activist investors, the need to ‘right-size’ workforces, fast-changing technology, hyper-competition, multiple layers of regulation, ESG challenges, and the digitization of everything have got the heads of European telcos spinning.”

GlobalData analysis finds that technology, evolving value chains, and extreme competition are combining with the need for further infrastructure investment to present management and investors with a tsunami of challenges.

Pritchard observes: “There are two possible solutions: highly sophisticated and agile management for a vertical delivery model, or simplification of the supply and value chain. Most European incumbents believe they can follow the integrated approach, but at the same time they are tacitly accepting the need for value chain restructuring.”

Already, many fixed and mobile physical infrastructure elements are being sold/floated, put into joint ventures, or delivered through emerging partnerships with, for example, cloud hyperscalers.

Pritchard concludes: “Ultimately, telecoms service providers with insufficient scale and resources for the full delivery stack will continue to split into infrastructure activities (‘NetCos’) and retail operations that will assemble propositions and solutions from multiple partners (‘ServiceCos’). A key driver of this now is intervention by activist investors which, ironically, may turn out to be a key element of market consolidation across a European market that is still characterized by multiple regulatory regimes and a tendency for intervention by national governments.”

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