Cable, FMC, infrastructure, cloud drive Q1 M&As

Matt Walker/Ovum

OvumThe service provider M&A landscape is changing. Straightforward fixed–fixed or mobile–mobile deals remain important – and huge in the case of the $79 billion merger between Charter and Time Warner – but smaller deals involving infrastructure assets, fixed-mobile convergence (FMC), and the cloud are becoming more common. Although they don’t always get attention, these deals can have a big impact on specific markets.

M&A is helping to transform the communications provider landscape

The flavor of M&A in the service provider sector has changed recently. In the past, big deals were usually focused on lowering costs and expanding network reach. Nowadays, though, tweaking business models and strategy is a bigger part of why acquirers pursue deals.

There continue to be some straightforward transactions aimed at gaining scale. Cable TV has accounted for the largest of these deals recently, with two deals each from Charter and Altice. Charter is owned by multinational cable player Liberty, while Altice is based in France. Therefore Charter–Time Warner, Charter–Bright House ($10.4 billion), Altice–Suddenlink ($9.1 billion), and Altice–Cablevision ($17.7 billion) have all been international in nature. More cross-border consolidation and expansion of cable TV is likely, but the pickings are getting slim.

Some important mobile consolidation deals are also pending. The largest of these is the August 2015 combination by Hutch and VimpelCom (Wind) of their Italian assets into a joint venture better able to compete with Telecom Italia (TI) nationwide. There is an element of FMC in this deal as well: Hutch has no fixed operation in Italy, while Wind is the second-largest fixed rival to TI (after Fastweb). Having both fixed and mobile arms under the same roof is increasingly important, in Europe and beyond. BT’s $18 billion purchase of EE and the $1.1 billion joint venture between Liberty and Vodafone in the Netherlands are other recent examples.

Many telcos are questioning what level of network ownership they need, using M&A to adjust. Some have spun off portions of their networks to carrier-neutral providers (CNPs) such as American Tower or as private equity. Others are looking at a wholesale business model change, where the entire network is divested, or at least separately run (e.g. Telefonica’s new Telxius unit). M&A activity in infrastructure was quiet in 1Q16, with just two sizable deals (surrounding towers in Indonesia and Tanzania). But CNPs have growth aspirations and many telcos still need cash, so the recent inactivity is unlikely to last.

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