It took less than a fortnight after the announcement of the O2 and Virgin Media merger in the UK for £ 31 billion for a new front to open up in the battle between two of the world’s largest groups. European telecommunications, one that should upset the competitive Spanish market.

Last month, Euskaltel, a telecommunications company focused on the Basque country, launched its mobile, broadband and TV offerings across the country using Richard Branson’s Virgin brand. The move transformed the hitherto regional group into a national player against Telefónica, which also uses O2 as a low-cost brand in its home market alongside premium Movistar.

Spain has arguably emerged as Europe’s most competitive market over the past year, as price competition, driven by a plethora of low-cost brands owned by the country’s four largest operators, s ‘is intensified.

Euskaltel’s entry into the mix has now turned it into an overcrowded five-player field just five years after heavyweights Vodafone and Orange consolidated the industry by buying out smaller rivals Jazztel and Ono.

But Laurent Paillassot, managing director of Orange Spain, the second largest telecoms operator, warned that the prospect of five national competitors is “unsustainable” in the long term. “I don’t know of any other market in Europe with so many brands,” he said. “It’s a very sophisticated and complex market that is unique in Europe.

Now an initiative by a private equity consortium to privatize Spain’s fourth largest telecommunications company, MasMovil, in a € 5 billion agreement is seen as the catalyst that could trigger a reconfiguration of the sector.

The telecoms start-up was founded in 1997 by Meinrad Spenger, an Austrian immigrant who recites quotes from Trappist monks in interviews, and was listed in 2012 with a market value of just 16 million euros. But the group took advantage of the acquisition of Jazztel by Orange in 2015 by buying network assets that the French company was forced to sell by regulators.

The bet paid off for the challenger whose market value quintupled between 2016 and 2018. It added 1.2 million customers last year while pre-tax profit rose 30% in the first quarter to 32 million euros.

With backing from Providence Equity Partners, Cinven and KKR, analysts and executives at rivals have suggested that MasMovil may step up to Vodafone or consider combining with Orange.

The consortium declined to comment. Orange has excluded itself from a counter-offer on MasMovil, but the French company believes a consolidation is likely over time.

One unknown factor is the position regulators would take on future deals. The European Commission has suffered a recent setback after a court overturned a 2016 ruling to block a UK takeover, which could be an incentive for consolidation in markets like Spain.

Vodafone fell victim to the battle at the top after pulling out of the battle for expensive La Liga football rights two years ago, leading to an exodus of customers. The adjusted profit before interest, taxes, depreciation and amortization of the Spanish subsidiary of the group decreased by 40% to 1 billion pounds sterling between 2018 and 2020 and it recognized impairment charges of more than 3.5 billion euros over the past two years.

Citi said in a note that Vodafone has “taken action on a number of disputed or underperforming assets over the years” and that Spain “now stands out” as the unit with the lowest yielding in the world. invested capital, a key measure for investors. The group is now starting to attract more Spanish clients, but analysts say it remains the most likely target for MasMovil, backed by private capital.

Vodafone declined to comment. Meanwhile, Euskaltel, which has expanded into Galicia and neighboring Asturias in recent years, has pledged to double its customer base to 1.6 million and its turnover to 1.3 billion euros. ‘within five years.

The national push to target the 85 percent of the country where it does not have a presence is led by Jose Miguel Garcia, a Spaniard raised in Australia who was appointed last year and who had previously defied expectations by righting Jazztel in difficulty.

Eamonn O’Hare, head of UK investment group Zegona, which is Euskaltel’s largest shareholder and drives the company’s growth strategy, said the expansion was already “turning into a gangbuster. “.

Mr O’Hare, a former Virgin Media executive in the UK, argued that with the Spanish economy on the way to trouble due to the pandemic, the low-cost packages offered would appeal to frugal consumers.

If Euskaltel’s push into virgin territory works, it could erode the margins of its bigger competitors and in particular Telefónica, which has driven growth through price hikes in the high end of the market. “Telefónica faces resurgent challengers and a looming recession. Value comes first, ”Jefferies analysts said in a note.

Yet even the Basque Country is not immune to increasing competition. MasMovil launched a new brand “guuk” in March specifically to target the region that could threaten Euskaltel’s profits at a time when it is booming.