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Telco sector in grip of M&A madness

As featured in the BillingViews blog

We are hearing of more and more mergers and acquisitions (M&As) taking place around the globe, particularly in the telecom and digital space, but what does it all mean for customers, suppliers and employees?

The argument for economies of scale are often used to justify or explain the swallowing up of one company by another, and you can ignore the clap-trap about mergers on an equal footing where both parties have an equal say – it just doesn’t happen. How many times has an acquired company been taken over because it has a great CEO, management team or brilliant staff?

M&As are all about increasing non-organic revenues, accessing new markets, acquiring new products or technology or eliminating competition. You can probably think of others but these are the main reasons in almost every case with the occasional last gasps of a cash-rich entity clutching at straws thrown in.

The world’s telecommunications market with its national fiefdoms, loose market deregulation, over-bearing government regulation and occasional fierce competition lends itself to M&A as a means of growing, and sometimes sustaining revenues, by accessing new markets.

Whilst telcos still have cash they are better positioned to buy in foreign markets as their own markets may see M&A as anti-competition. They have plenty of reasons to make the move now but the looming shadow of fast-growing digital service providers and OTT players they see as threats are surely playing a part.

You’ll hear some great excuses to cut costs in the newly-combined operations. Things like centralized or cloud-based ICT, amalgamation of suppliers, economies of scale, smaller management teams, etc. But almost every argument is backed by cutting something or somebody out in order to show quick savings to nervous stakeholders.

It’s often hard to tell whom actually benefits from M&A, apart from lawyers and financiers, but it is very easy to see, after the event, what has not worked. The lessons that can be learnt could go a long way in helping the next M&A to be both successful and profitable despite the mentality that exists in telcos that they know it all.

Unfortunately for them, their ‘new’ disruptive competitors have a different DNA and they see things very differently. Taking risks is a big part of their strategy, trying new ways to do business and not following rules another. It won't be long before their frustrations with the telco establishment provokes them into becoming direct competitors or doing their own acquisitions in the network space.

We are already hearing of the massive private networks and content delivery infrastructures that Google and Apple have in place already. Moving closer to the edge and acquiring the last mile may not be appealing now but if anything ever threatens their delivery chain they will not hesitate to act.

But coming back to the current scenario we can see some great examples of M&A ‘terror’ unfurling. Iliad, the owner of French upstart network ‘Free’ is making a bold move to acquire T-Mobile in the USA. The $15 billion bid, in opposition to Softbank’s, has been viewed by commentators a number of ways.

European Communications reports that Andreessen Horowitz analyst Ben Evans commented: “It’s not clear how adding more aggression to T-Mobile (as though it lacks it) would break though the massive spectrum and capex advantage of Verizon and AT&T.”

Recode.net reckoned that while it’s not clear if T-Mobile’s owner Deutsche Telekom is taking the bid seriously one thing is certain – the deal would be a lot easier to get approved than any merger with Sprint.

Wireless Week took a different angle with its headline “Analysts: Iliad ‘Free’ Strategy Could Cripple US Carrier Earnings.”

With so many varied views on what one M&A means you can see why customers and suppliers don’t exactly jump for joy when the news breaks and you can bet this M&A madness will not subside anytime soon.