Friday, December 20, 2013

Consolidation versus expansion

There are different types of consolidation:
  • horizontal: when opeators focus on certain geographies
  • horizontal: for focus on certain services markets:
    • fixed, mobile
    • consumer, business, wholesale
    • communication, entertainment, web services
  • vertical: when exposure to the value chain is reduced by selling infrastructure assets (sale, sale & lease-back, sharing):
    • real estate: cabinets, towers, PoPs, data centers
    • passive layer: mainly fiber
    • active layer, managed services: equipment
Focus and consolidation make sense for several reasons:
  • capital/cash flow may be scarce (capex)
  • maximise revenues by concentrating sales efforts (opex)
  • the economics and business models may vary widely (network vs. services)
  • not compete with ones own customers (retail vs. wholesale)
We have seen examples of geographic consolidation. Services consolidation happens for instance at T-Mobile NL, which is going mobile-only. However, we have also seen expansion rather than consolidation:
  • Verizon acquiring upLynk and EdgeCast
  • Deutsche Telekom acquiring GTS
  • Vodafone acquiring CWW and Kabel Deutschland
  • TeliaSonera acquiring FTTH assets in Sweden
  • Telstra buying DCA Health
Expansion can be driven by:
  • expand to new markets (geographies, services)
  • control a larger part of the value chain (infrastructure)
  • scale, synergies
Geographic consolidation can easily be understood from a capex point of view. Verizon and TeliaSonera (see above) are trying to get control over a larger part of the value chain by adding CDNs and FTTH assets. Telstra goes one step further by venturing into the services business.

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