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* Competition watchdogs taking tougher stance on telecomsM&A
* Cross-border deals face multiple obstacles
* Telecoms shares are reaching valuation peak -analyst
By Mathieu Rosemain
BARCELONA, Feb 24 (Reuters) - The merger and acquisitionactivity that has characterised the European telecoms market inrecent years could soon grind to a halt, even as Orange looks to seal a potential 10 billion euro ($11billion) deal for French rival Bouyges.
While Orange Chief Executive Stephane Richard believes thatthe so-called convergence of fixed networks and mobile servicesremains key to growth, sector analysts have noted regulators'growing concern about reduced competition while the differencesbetween individual markets mean that cross-border integrationcould prove unworkable.
"The players that are mobile only or fixed only will havedifficulties if they want to remain competitive in Europe,"Orange CEO Richard said at the annual Mobile World Congress inBarcelona. "We're having this kind of discussion aboutconsolidation in Europe because we're having a convergenceissue."
That desire to broaden the appeal to customers wanting asingle operator for multiple services was highlighted by theannouncement last week of a tie-up between mobile telecomsnetwork operator Vodafone and cable company LibertyGlobal. The two companies are looking to combine theirDutch operations to create a stronger package of TV, broadbandInternet and mobile.
Similarly, Britain's BT Group bought EE from Orangeand Deutsche Telekom for 12.5 billion pounds ($17.4billion) to create a single integrated network offering acombination of telecoms and TV services.
TWITCHY WATCHDOGS
However, competition authorities are becoming increasinglytwitchy about the shrinking number of operators in somecountries.
The proposed takeover of Telefonica's O2 by CKHutchison Holdings in Britain received a less thanglowing response from the head of British telecoms regulatorOfcom, Sharon White, who spoke of potential risks to investmentand prices in a Financial Times article this month.
Hutchison also received a list of objections this month fromEU's antitrust authorities over a deal that would createBritain's biggest telecoms operator, a person familiar with thematter said.
EU authorities are anxious to avoid a repeat of thesituation that followed the 1.3 billion euro acquisition ofOrange Austria by Hutchison in 2013. That deal led to priceincreases of more than 30 percent for mobile users, Austria'stelecoms regulator said.
The hardened attitude of competition watchdogs wasemphasised in September, when a proposed merger of Telenor and TeliaSonera in Denmark was withdrawnafter EU Competition Commissioner Margrethe Vestager expressedconcerns it would lead to higher prices for consumers, markingthe first time such a deal had been blocked since telecomscompanies began their M&A spree three years ago.
One might think that these obstacles to domestic deals wouldraise the prospect of pan-European consolidation among theregion's 30-plus operators, but the risks and complexity makesuch mega-mergers unlikely.
VALUATION PEAK?
"We're not the United States of Europe. There are very fewsynergies between countries as of today," says BNP Paribas analyst Agathe Martin.
"Content (services) are specific to each country and socialstakes create difficulties, not to mention the differentregulatory frameworks."
One of the upshots for European telecoms companies is apotential drop in share price valuations.
"It's not the right time to buy telecoms shares," Natixisanalyst Jacques de Greling said.
"We're reaching a valuation peak that is essentially due tothe M&A activity in the domestic markets. It will soon be over as there won't be anything else to consolidate after the numberof operators is cut to three in each market and given thatthere's no cable operator to buy."
De Greling estimates that the relative price-to-earningsratio for the European telecoms sector is at about 1.3, comparedwith the historic average of 0.9 for the overall market.
Yet M&A is far from an exact science and a big acquisitionis not totally beyond the realms of possibility.
"Would I rule out that somebody does something completelystupid? No," said Wolfgang Bock, leader of thetelecommunications practice at Boston Consulting Group.
"You can always find big egos who ignore the economicrealities to build an empire. Empire-builders might come back atsome point."($1 = 0.9112 euros)($1 = 0.7200 pounds)
(Editing by David Goodman)
