ANALYSIS: The ripple effect

As one of the biggest M&A deals in history comes to a close, is the industry set to experience a ripple effect, causing widespread consolidation across the global marketplace?

With Vodafone’s mammoth $130 billion deal to sell its stake in Verizon Wireless only two months old, the European industry could be primed for consolidation. There are now a range of markets across Europe that suddenly look attractive and cash-rich global operators are taking an active interest in investing.

Perhaps to offset Vodafone’s potential domination, given its new-found capital injection, rival European operators have begun to indicate that they are also in the market to make investments and increase their presence in struggling European economies.

Deutsche Telekom, which announced a deal to acquire eastern European operator GTS CE last week, is just one example. Timotheus Höttges, CFO at Deutsche Telekom, said the company was “investing against the trend”.

“GTS is a further element for developing our integrated market position, comprising mobile and fixed-line network services,” Höttges continued.

Transatlantic interest

Across the Atlantic, operators are looking at Europe to offset the effects of maturing mobile broadband markets, in a bid to invest more in the continent.

AT&T, for one, has made its intentions for Europe apparent. The company’s CEO Randall Stephenson stated that he “continues to be fascinated by how slow mobile broadband is moving in Europe”. He further suggested the continent presents a “great opportunity, which is amazingly exciting”.

Vodafone’s exit from the US has been rumoured for years, and its conclusion could result in the company increasing its vast presence across the globe. The UK-based operator has now been linked with a range of acquisitions and investments in markets including Italy, India and Turkey.

Last week it announced its plans to invest approximately $7 billion in global network improvements, and has already increased its stake in its Indian subsidiary. It also closed a deal to acquire Kabel Deutschland in Germany, with the aim of boosting its offering in the German market and competing more aggressively with Deutsche Telekom.

David Molony, principal analyst at Ovum, told Capacity it was highly likely that the company will look at plans to integrate the network assets it has acquired in Europe, which could then lead to additional acquisitions.

“I believe they will continue to make more acquisitions in Europe on the network side, extending 4G LTE, M2M and service-delivery platforms,” he said.

“They could look to integrators and distributors that can help with marketing and service delivery, especially in enterprise services, but also in consumer multichannel services,” he added.

It could conversely be argued that operators had been strategising to improve the position of European telecoms before Vodafone’s exit from the US.

A question of strategy

América Móvil has been attempting to gain a presence in Europe, and its recent failure to acquire Dutch operator KPN could see a rival operator making a play to acquire the troubled company. The future of Telekom Austria also remains in doubt, with América Móvil’s rumoured intentions to take a controlling stake in the company significantly hit by its failure to tie up KPN.

Wally Swain, SVP at Yankee Group’s network research team told Capacity that América Móvil’s full-takeover acquisition strategy can serve as both a positive and negative.

Swain drew on Telefónica’s attempts to raise its stake in Telecom Italia – another example of increasing European consolidation – as an example of the drawbacks companies face in not taking 100% of a potential target.

“Look at the complications Telefónica is facing in the case of Telecom Italia,” he said. “It is trying to leverage a controlling stake of a company because it cannot afford or does not want to invest enough to own 100%.”

With these early plays, the big European operators – Vodafone, Telefónica and Deutsche Telekom – are seemingly setting a trend for their M&A strategy in 2014.

“Telcos need to invest more in wireless and mobile coverage especially,” says Molony. “Vodafone’s intention is not much different to the rest of industry at the moment, and enterprise clients are continuously expecting no less than 100% coverage, with better availability and reliability.”

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