Thursday, November 24, 2011

How to reduce incumbents' power: ban all domestic takeovers

KPN made several dozen acquisitions over the past few years. I count 51 (and probably missed a few) since early 2005 in just about every category, mainly in the Netherlands, but abroad as well. Small companies and bigger ones, such as Telfort, Tiscali NL, Getronics, Reggefiber and iBasis. Fixed and mobile, consumer, business and wholesale. Some assets were sold on, but generally the acquisitions fortified KPN's market shares, or even propelled it into a new business. And takeovers compensate for negative growth in KPN's traditional business.

KPN is the incumbent, has SMM in several markets and is therefore regulated. But one measure has not been part of the regulator's toolkit: a ban on domestic takeovers. Just imagine what that would have meant, especially for the home market:

  • Opportunities for challengers to buy assets at lower prices (KPN probably drove up valuations).
  • No easy 'exit' for start-up entrepreneurs banking on a sale to the incumbent.
  • Significantly lower market shares for KPN in most markets.
  • Much stronger challengers and market shares much less skewed toward the incumbent.
  • An earlier end to deregulation in several markets.
The message to the incumbent would be: all takeovers are prohibited; if you want to add technology, expertise or a share in a new market, you simply should go build it yourself.

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