Tuesday, July 08, 2014

All providers are potential preys in ongoing consolidation

Consolidation is ongoing. International groups consider takeovers, as well as exits. Local companies are acquired.


The hunters:
  • Telcos: DT, Orange, Telefónica, América Móvil
  • Mobile: Vodafone, Hutchison, SoftBank, VimpelCom etc.
  • Cable: Liberty Global
The hunted:
  • Telcos: KPN, Belgacom, Swisscom, TDC, eircom, BT, PT, TI, etc.
  • Mobile: Bouygues Télécom, Yoigo (TeliaSonera), etc.
  • Cable: Com Hem, RCS&RDS, R Cable, Publifin/Voo (formerly Tecteo), etc.
  • Challengers: FastWeb (Swisscom), Eurofiber (Doughty Hanson), Iliad
  • Telcos: TeliaSonera, Telenor
  • Other: Tele2, Altice, M7 Group
Some considerations:
  • A certain required rate of return.
  • Being #1 or #2 in any given market (segment).
  • Owning sufficient mobile licenses and network assets (for minimal COGS, to maximise gross margins).
  • Aternatively: virtual service provider (asset-light).
  • Substantially increased scale and/or synergies.
  • Willingness to incur start-up losses.

Let's look at the Netherlands as an example. There are 7 nationwide groups, consolidating to 6:
  1. KPN: mostly a local telco, with a small operation in Belgium. It will receive EUR 5 bn from selling E-Plus, and a 20.5% stake in Telefónica Deutschland (worth another EUR 1.5 bn). Perhaps it finds ways to expand.
  2. Tele2: among the largest holdings of the group, with a strong core/backbone network and a strong fixed-line business market presence. Tele2 NL is on the ladder of investment that is so central to the group's strategy. Still, T-Mobile could buy Tele2 NL to re-enter the fixed-line market. But as the Tele2 Group is getting out of Norway (after exiting Russia), it is becoming a takeover candidate itself.
  3. Vodafone: it remains to be seen if it can build substantial presence on the fixed-line market. Takeover candidates are Tele2 and Eurofiber. Alternatively, it could partner with these companies, as well as Reggeborgh (once it gets out of Reggefiber) and CIF (which owns a string of small cable companies, which are structurally separated and overbuilt with FTTH - service provider Caiway is for sale) to create a competitor to incumbent FTTH (much like Vodafone is doing in Spain and Ireland). Alternatively, if the fixed-line market is unpenetrable Vodafone may decide to exit.
  4. T-Mobile: it sold off Online.nl, making it a mobile-only provider. This doesn't sit well with DT's stance, but it could be tolerated (T-Mobile NL being billed as a 'smart attacker' - perhaps evolving into an 'un-carrier'). Otherwise, it could be a takeover candidate for Tele2, Liberty Global or a new entrant (América Móvil, Orange, Iliad, Altice). Or buy Tele2 NL.
  5. Ziggo and UPC are in the process of merging, with ~92% coverage. Liberty Global may subsequently sell the merged entity if it doesn't comply with the group's goals.
  6. M7 Group: controls CanalDigitaal (sat-TV) and Online.nl and is a 3P service provider on FTTH networks. Could be a takeover candidate for a group that believes in virtual service provisioning: Caiway (= CIF), Scarlet or a large MVNO group such as Lebara or Lyca.
Other companies that could be for sale:
  • Cable: Delta Kabel, Rekam, Kabelnoord, Kabeltex, SKV Veendam, Edam-Volendam, Pijnacker, Waalre, Bleiswijk, Assendorp, Rozendaal, Hoogvonderen; service providers Caiway and Cbizz.
  • Other: Eurofiber, Scarlet, Solcon and a long list of FTTH service providers.
Conclusion: the future is uncertain for all players, but more consolidation seems to be on its way. There are a few dead-certain predators, but even Vodafone, Liberty Global or Tele2 could turn into a prey.

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