Carlos Slim is no stranger to the European telecommunications sector. The Mexican billionaire, who knows the business well through his own company, América Móvil, is the latest strategic investor to join the BT Group's shareholder circle. Years ago, he made significant investments in two former state-owned European telecom operators, first KPN, then Telekom Austria. In both cases, Slim took advantage of share price weaknesses caused by business problems. While his attempt to fully acquire KPN failed and he subsequently exited, he still holds a majority stake in Telekom Austria. His entry into BT Group has also followed a prolonged share price decline, which he utilised to acquire a 3.16% stake.

Slim's shopping spree in the sector is not an isolated case. The stocks of European telecom companies have significantly underperformed compared to other sectors for years. This has not gone unnoticed by strategic investors, who have taken advantage of low valuations. Besides Deutsche Telekom, which acquired a 12% stake in BT when it sold its half of the mobile company EE to BT, Altice UK, which is controlled by billionaire Patrick Drahi, is also involved. Drahi has increased his stake in several steps to 24.5%, nearing the threshold for a blocking minority.

Things are even more turbulent among Vodafone's shareholders. United Arab Emirates based conglomerate e& has built up a 14% stake, while Liberty Global, which sold Unitymedia to Vodafone for a multi-billion euro deal, secured nearly 5% of the mobile giant for a nine-figure sum. French billionaire Xavier Niel also acquired a 2.5% stake some time ago. Additionally, there are rumours that Swedish activist investor Cevian was involved in Vodafone's shareholder circle for a while.

While management feels compelled to welcome every shareholder as proof of the attractiveness of their stock, a diverse mix of shareholders is likely to lead to conflicts of interest amongst themselves – and with management. Marc Renner, a telecommunications expert and partner at Oliver Wyman, points to the downsides of the investor rush: „When more investors demand a say, there is a risk that management will no longer focus on the essential business drivers but on individual interests. This can lead to decisions that are not in the company's long-term best interest.“

Such a conflict became apparent at Vodafone regarding the sale of its Italian operations, for which Iliad, which is controlled by Xavier Niel's investment company, had bid. In the end, management prevailed. Vodafone Italia went to Swisscom's subsidiary Fastweb, whose offer was higher overall. The problem lies not only in divergent interests among individual investors but also in the fact that many investors are attracted by a business-related share price weakness. „They often try to boost the share price with short-term measures to make their investment profitable“, notes Renner. These often include „short-sighted cost-cutting rounds and frequent management changes. But this ultimately only erodes trust among customers and on the stock market.“

A prominent example of value destruction due to constant shareholder disputes is Telecom Italia. For years, CEOs came and went because a long-term strategy could not be agreed upon with major shareholder Vivendi. Meanwhile, revenues stagnated, the crushing debt burden remained, and eventually, a drastic measure was taken by separating the fixed-line business, the consequences of which are still unclear.

The impact of Saudi Telecommunications Company (STC) acquiring a stake in Telefónica is also unclear. The immediate reaction of the Spanish state, which acquired a 10% stake, was notable. So far, the movements in the shareholders group have had little effect on the share price. Since STC's entry, the stock has only risen by about 2%.

Renner acknowledges that advisors consider European telecom companies „to be undervalued on the stock market – we see potential there.“ The industry is quick to point fingers at others when it comes to the causes of the share price misery. The main culprits are the major Over The Top (OTT) players like Google, Netflix, or Meta, who use telecom infrastructure for their services and content without contributing to the infrastructure costs, a frequent criticism from telecom companies. In fact, according to Renner, corporations often fail to capitalise on the strong demand for their products. „High-bit-rate data connections, intelligent network services, system integration, all of this is in high demand," he says. However, not all companies „succeed in positioning themselves operationally to meet this demand in a way that is tailored to customers and profitable for themselves."

Renner cites the poor monetisation of major infrastructure investments like fibre optics or 5G as an example. Particularly in the business customer segment (B2B), where high bandwidths are more needed than by private customers, telecom companies fall behind others. Telecom equipment suppliers can often make better offers directly to customers. As a result, the downturn in B2B business is the same for all major players. Deutsche Telekom, Orange, and especially BT Group, which has focused on the B2B business, are grappling with price and revenue pressures as well as margin erosion, particularly in traditional system integration.

Even in the private customer segment, fibre optic providers face strategic challenges. „Uptake rates are still too low“, says Renner. Whether these and other challenges can be overcome soon, given the many voices at the management table, is doubtful.