M&As can swing a number of ways

Written by on September 18, 2015 in Guest Blog with 0 Comments

Couple holding hands in parkAT&T is acquiring DirectTV. BT acquired EE that was sold by Orange and T-Mobile. Telefonica sold O2 to Hutchison and its owner Li Ka-shing can well sell all telecom assets when the price is right. We can see at least three directions for carriers to grow. But it is hard to say which one pattern or strategy of growth will be the one to dominate. And it looks like the carrier business is always a local business rather than a global internet business. If Google and Apple enter the MVNO business, it can all change again.

When we look at carrier M&As during the most recent years, we can see three main directions used to grow the business: 1) geographical expansion; 2) expansion into the content market, and 3) fixed-mobile offering. It is also interesting to see that more carriers look for growth through M&A than through organic growth. And M&A activities are much more aimed at other carriers and media companies than for example internet companies.

It is not easy to draw direct conclusions that a certain type of growth strategy has especially worked for carriers. But we can list some challenges carriers have encountered. For example: 1) carriers were previously more eager to develop their own internet services, but many failed so many times that they are not keen to pursue them anymore; 2) it is not easy to have global synergies and after international acquisitions, carriers have also retreated from many countries; and 3) carrier and media business seem to be always quite local in a country, and it is hard to have similar scalable models as global internet companies have.

If carriers want to cooperate with global content companies, like Spotify, Netflix or Amazon, their negotiation positions are much weaker than with local media companies that have quite a tough time in their business. Carriers and local media companies have also had many similar structures in their business, like the need to make local capex investments e.g. in the infrastructure, have a strong local organization and have a local sales and distribution networks. Based on these factors, we can claim local media companies are natural strategic partners or M&A targets for carriers. And also some local enterprise services go to the same category.

If a carrier wants to be really international, then it is normally easier to focus on pure network operations, not try to have its own content, enterprise or web services to customers. It can still offer its partners services, e.g. Spotify’s music, but it cannot take a significant margin from it (read Music, mobile and money). These carriers are just distribution channels for global Internet companies, not really strategic partners. As a distributor a carrier can offer more value if it has broadband and mobile networks. And it is also easier for consumers to have the same content available on all devices.

Based on this there are two potential main strategies for operators: 1) becoming pure global network operators that can be valuable distributors for internet giant’s services, but cannot offer its content or enterprise services, except in a couple of big key markets; 2) more local carriers that look for their own services through M&A and strategic local partnerships. But nothing is stable in this market.

It has been said about the TV business in the US that, when you think of the role of production companies, TV channels and cable (distribution) networks, whenever you start to see one of them can dominate, something changes (e.g. popular content or a new subscription model) and it changes the power structure.

It can be the same in the carrier business – no status quo. Now we know Apple and Google plan MVNO activities and Apple already has launched its more carrier-independent SIM-concept. They probably have plans to change the old structure. It means a carrier must have a lot of subscribers globally or a strong local position to succeed, i.e. be the champion in something.

First published at TelecomAsia.net.

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About the Author

About the Author: Jouko Ahvenainen is a serial-entrepreneur and Co-Founder of Grow VC Group, a holding entity including over 10 companies, a pioneer in digital finance, fintech and data analytics solutions. Jouko started his work with digital finance and fintech models in 2008 and listed world-class influencer. He participated in changing US finance regulation, getting the Senate and President to allow JOBS Act and has worked with EU and Asian finance regulation. .


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