German telco market faces marriage of convenience, not love: On Telefónica Deutschland snapping up E-Plus
Or, how all parties can win in the long term – except Dutch KPN. A commentary by international telecommunications expert Dr. Ekkehard Stadie*
This merger was overdue, but it’s a marriage of convenience, not love. The entire industry is suffering from stifling price competition. Our bridal couple have focused more exclusively on price in recent years than anyone else in the sector – but that’s not what their customers always really wanted. Consumers in Germany have virtually stopped complaining about expensive tariffs, and are now far more concerned about the overloaded networks. CFOs are agonizing over constantly having to invest, even though the damage was self-inflicted by data flat rates and packages that they couldn’t monetize effectively.
If the remaining German providers now focus clearly on their segment strengths, the merger could be a success for customers and investors in the country. Traditionally, Telefónica and the E-Plus Group have been stronger in the young, price-aware segment. Vodafone and Deutsche Telekom tend to attract more custom higher up the chain. If the previous incumbents stop their cut-throat pricing in the lower-end segment and concentrate instead on the mid-range and upper segments, the industry as a whole may be able to tap into the willingness to pay for products that everyone wants to have. What they need is a clear declaration of which brand will serve and defend which segment, just like Audi, BMW and Mercedes in the automotive sector – plus a new price model that monetizes the remaining growth drivers in telecommunications: data volume, speed and the number of devices connected to the Internet. Otherwise success will be impossible.
The stock market realized this immediately. The real winner is Deutsche Telekom; its share price will continue to grow, while the KPN share price explosion will soon fade. After all, where is the strategic appeal to investors of a KPN “shell” whose key holding, E-Plus, is replaced by cash and a minority stake in Telefónica’s German subsidiary?
*Dr. Ekkehard Stadie is a partner at the worldwide consultancy Simon-Kucher & Partners, where he heads the international Telecommunications competence center.
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