Fantasy Telco League – Building Dream Service Providers

M. Halama
M. Halama

Summary Bullets:

  • Be ready to exploit a round of telecom industry consolidation
  • Potential for merging telco, ITSP, OTT and media assets and abilities

Telecom operator mergers and acquisitions have been sparse during the current economic downturn, though there have been some interesting ones, e.g., Verizon buying Terremark and CloudSwitch, NTT buying Dimension Data, Level 3 acquiring Global Crossing, and CenturyLink buying Savvis and Qwest. The lack of more merger and acquisition activity is surprising given the depressed state of some telco and ITSPs’ share prices. Now in 2012 there have been two attempts to acquire Cable & Wireless, from Vodafone and Tata Communications. Vodafone remains in the running with a GBP 1 billion bid. More recently Carlos Slim of America Movil in Mexico offered US$3.8 million to up his stake (to 28%, from under 5%) in Netherlands-based KPN. In keeping with speculation that expansion in Europe is of interest, Slim is also reported to be ‘eyeing’ Telekom Austria.

Consolidation and speculation adds excitement to the monotony of regular rounds of quarterly results. Bringing together the best attributes of two or more companies can create synergies (from human resources and physical assets) and deliver industry players with enough market scale to execute on worthy visions. Alternatives to consolidation, such as alliances and joint-ventures, are not risk-free. Some floundered in the past (e.g., BT and AT&T’s global joint venture ‘Concert’) amid the vagaries of parallel but unconsolidated ambitions or divergence of corporate interests over time, other joint ventures seem to be working (e.g., the O2 and 2e2 enterprise). So more mergers and acquisitions seem likely, and will accelerate industry consolidation. Now is the time for strategists and end-users to step forward, and dream of the perfect collection of telecom assets.

What would be your fantasy telco combination? Will bonding Vodafone (with its internal discipline, occasionally splendid innovations and formidable global wireless assets and revenues) and Cable & Wireless (with its venerable name, impressive client list and far-flung fixed network reach) make a fantasy telco league champion? Perhaps Colt’s widespread European data centers and network would make an excellent marriage. Tata still has inorganic growth ambitions and its global wholesale strength may complement regional or national players with wholesale or retail services. ITSPs, OTTs or media companies, or some of their assets, might be added to telcos. ITSPs have been consolidating quicker – Atos with Siemens Network Services, Computacenter snapping up going concerns around Europe and Capgemini bulking up to keep its position as a leading Europe-based revenue generator. Just look at how well NTT is doing with Dimension Data and wonder at Microsoft and Skype. T-Systems is gearing up for growth and will need acquisitions to achieve its ambitions, and Google is always there so you may need to dig deep.

Some rules: end-users and supply-side players can each build fantasy service providers; network, products, management prowess, intellectual property and other assets are constrained to what is currently or imminently available; regulators deal in fantasy all the time so expect intervention that only sheer scale or concessions can overcome; bidders’ budget is limited by corporate income and borrowing; purchase of individual assets (such as data centers or portfolios), and asset swaps, are permitted; there are other fantasy telco buyers out there who might outbid you – this is your dream, but value assets credibly. Some suggestions: think of customers and money as much as engineering excellence – winners will be decided by total actual revenue from specific assets combined, less the price paid for those assets – and those revenues depend on the judgment of customers.

What do you think?

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