The last week has seen a flurry of telecoms announcements: Vodafone chief executive Arun Sarin confirmed that the company is likely to acquire more assets in emerging markets and other sectors such as media; Cable & Wireless tabled an informal offer for Thus; Reliance Communications bought virtual operator Vanco; MTN attracted takeover talk, and France Telecom was said to be lining up a €10 billion credit facility, fuelling speculation of a major acquisition,
Chris Woodland, TMT Strategy director at KPMG, said: “These announcements are testament to our view that fundamental industry changes relating to customer acquisition, technological change, price erosion, and product and sector convergence are driving consolidation in the telecoms market.
“Consolidation has been long heralded: telecoms economics requires network scale, and they improve further with greater economies of scope – selling multiple comms, media and sometimes IT services to the same customers.
“And on the demand-side, consumers and companies are at last benefiting from lower service prices and increasingly choose telecoms, media, and IT service bundles.
“As service providers with scale and strong brands fill gaps in their service portfolios (say mobile operators acquiring broadband assets, or fixed players acquiring IT services and application providers) or geographic footprint, the pressure on smaller, domestic players is becoming significantly greater.
“Smaller operators are likely to continue to find life difficult. Shareholder interests may be best served by accepting take-over approaches.
“Until recently, private equity firms were considered the most likely catalyst for M&A. But the dearth of low-cost credit has taken some momentum away from them, at least temporarily.
“Instead telecoms companies themselves are driving M&A – buoyed by the prospect of capturing cost synergies (largely from removing overlapping IT, networks and overheads), and the ability to drive higher sales (from cross-selling of telecoms and media product bundles increasingly successfully), as well as acquiring ‘new’ customers.
“Consolidation of network-based fixed and wireless operators by larger, pan-regional telecoms providers, or by players from adjacent media and IT services markets, is here to stay, and may well accelerate. The new telecoms landscape is fast coming into view.”