Does recovery depend on the 'C' word? Consolidation is held by many to be at the root of most, if not all, prospective recovery strategies for the sector.(commentary)

There was marked enthusiasm--perhaps even jubilation--when Cable & Wireless announced in August it would be buying UK competitor Energis. Media reports trilled with the prospect of the sound of cash changing hands, giving Energis' senior managers a capital windfall that few might have expected. Some commentators went on to say that 'even' telecom could be back in vogue in a mini-boom M&A in Europe; praise indeed for a sector that has been the investment pariah of the business world for four years now.

But one swallow does not make a summer. This was after all a relatively small transaction between the No. 2 and the No. 3 fixed-line players in a single national market. But the transaction did seem to make financial sense at least in terms that one player was expanding and acquiring the business and customers of the other player. It may be a useful signal for the rest of the telecom community too.

The media optimism was based on the premise that some much needed industry consolidation was finally occurring. This 'c' word is held by many to be at the root of most, if not all, prospective recovery strategies for the sector. Reduce the number of players, this thinking goes, and you have a situation where the remaining suppliers can begin to accommodate the size of market and even gain some pricing power. Never mind, in fact, that in the heat of all this summer enthusiasm, even Cable & Wireless' CEO, Francesco Caio, was quoted as saying something along the lines that 'we are price takers, not price givers'--a clear reference to the continuing weakness of the market.

If this does in fact prove to be the case, then it is relatively clear that there has to be much more consolidation before prices can be 'given' again. I find myself wondering if even a single entity or, failing that, an outright duopoly in fixed-line infrastructure (if that does prove to be the final destination here) would really be any better. It's a bizarre thing to suggest because it is precisely these sort of commercial structures that are supposed to dictate to the ...