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Will the EU Witness a Fixed-Line Call Price Cap Lift?

Zacks Equity Research

The European Union (EU) telecom regulators have decided to overhaul the telecommunications markets of the 28-country block. As part of this move, the regulators have proposed to discontinue with the fixed-line phone call price capping.

Consequently, telecom operators will enjoy the liberty to decide on call charges for both end-users and alternative carriers who use that telecom operator’s network. The new regulation is expected to be implemented effective Oct 2014, subject to the approval of each member country’s parliament.

The overall telecommunications sector of EU currently lags behind the U.S. and Asia. Meanwhile, the astounding growth in wireless networks throughout the world has considerably affected the fixed-line phone service.

Additionally, the availability of alternative platforms such as Skype and various conference call services and messaging applications have led to intensified price competition. As a result, large telecom operators suffered significant losses of fixed-line revenues and margin.

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The proposed reform of price capping theory is likely to boost large carriers like Telefonica S.A. (TEF), Orange (ORAN), Telecom Italia Spa (TI), Deutsche Telecom, KPN and Teliasonera. These telecom operators have argued that freeing of pricing structure will increase their top-line and raise margin.

Consequently, these operators have more investable fund to install high-speed broadband networks, which will ultimately benefit end-users in terms of speed, data reliability and competitive prices.

However, small telecom players have raised voice against the lifting of price caps which will be detrimental to their financial conditions, both in terms of lower revenues and margins.

Small telecom operators such as TalkTalk, Wind, E-Plus, etc., are dependent on their larger counterparts to rent fixed-line in order to enable their own user’s to make calls. Large operators can now charge more which will harm their business prospects.

Read the Full Research Report on TEF
Read the Full Research Report on TI
Read the Full Research Report on ORAN


Zacks Investment Research