Wave of telecoms consolidation driven by scale and profitability issues

8 Apr 2010

The telecoms world is currently awash with major M&A activity – Bharti is close to completing its acquisition of many of Zain’s African operations, America Movil is pulling Carso Group (Telmex and Telmex Internacional) back into a single fold, Orange UK and T-Mobile UK are rolling their operations into a joint venture, and both Telefonica and Liberty Global recently completed acquisitions in Germany. The past year also saw consolidation of service providers in some key markets, including Brazil, South Korea and the United States, while 2010 should finally see some long overdue consolidation of operators in Russia.

What common thread is driving these activities? TeleGeography’s most recent round of service provider benchmarking analysis provides some answers. With telecoms market growth rates declining and not forecast to return to previous levels, organic growth is proving to be more difficult for some companies, and virtually impossible for others. There are some clear consequences.

Aggressive growth-oriented companies that are determined to bulk up and join the ranks of the largest operators are having to rely more on acquisitions – Bharti is a perfect example. Other companies, such as Deutsche Telekom, have already diversified geographically, but are under increasing pressure to improve financial performance, and are focusing on cost savings and margin improvement. In the middle sits Telefonica which has historically grown through aggressive international expansion, but which has managed to maintain above average profit margins. It can afford to seek out further acquisitions without incurring the wrath of investors.

‘The natural urge to maximise growth and gain global market share remains, but is now tempered by a need to focus more on profit margins,’ said TeleGeography’s John Dinsdale. ‘While it may be counterintuitive, many of the world’s largest service providers have among the lowest margins, which restricts their M&A options. Expect the bolder acquisitions to come from smaller operators and those whose actions are not constrained by unhappy shareholders,’ he added.

TeleGeography’s service provider benchmarking research includes analysis of revenues, profitability, subscribers, ARPU, growth rates, geographic footprint, market share, competitive positioning and future growth prospects. It is published as part of TeleGeography’s GlobalComms Insight service which is a companion to the GlobalComms Database, a regularly updated online database of wireline, wireless and broadband competition. No other telecoms market research service rivals their collective geographic scope and depth of coverage.

For further information, please contact: John Dinsdale (jdinsdale@primetrica.com) or call an account manager on +1 202 741 0020

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