Monday, March 15, 2010

Future of Telecom Operators : Global M&A and “Walmart of Services”

How the Telecom Operator landscape will shape in future? Two trends which might unfold

Global and Regional Consolidation (M&A):

Already local , regional and Global M&A is under process but there is still more room for M&A. There are more than 700 Telecom Operators in the world and finally these 700 operators after consolidation might narrow down into two digits.

Who will be the buyers and who will be the sellers in Global M&A game?

Which is the “most global” Telecom Operator?

I thought “most global” Telecom Operator would be Vodafone. When I looked at the data, surprisingly, Orange was present in more countries than Vodafone as direct Operating Entity.

Plotting the data for Global Operators – Consolidated Revenues of Direct Operating Entity in $ Billion (X Axis) versus Number of Operating Countries ( Y Axis) gives interesting results.

Operators in Right Top Quadrant:

Five Operators can be called truly global and their Globalization Strategy is working so far – Orange, Vodafone, Telefonica, T Mobile, America Movil

Operators in Left Top Quadrant:

They are present in many countries but their revenue lag behind global operators. They will most likely be acquisition targets –

Not surprisingly, MTN and Zain belong to this group and are looking for buyers…

Qtel has expressed vision of being among Top 20 players globally …So Qtel might consolidate either with Orascom , Etisilat or MENA assets of Zain.

Among Telenor and Telia Sonera , some consolidation might take place and Telia Sonera might be the likely winner with some interesting combinations

Market Buzz is that Telenor is already looking to divest its stake in Telenor Pakistan to China Mobile.

Telia Sonera has investments in Turkcell and Megafon . It may increase its stake to convert into operating control.

Telenor has stake in Vimpelcom, Either Telenor may acquire Vimpelcom or Vimpelcom may acquire Telenor or third entity ( Telia Sonera )may acquire that stake.

Operators in Right bottom Quadrant:

These Operators have built economics of scale in few key markets ( Cash Cows). They are not in pressure either to sell or to acquire other operators. They are likely to be opportunistic in pursuing opportunities –

Selective Global Acquisition –
China Mobile acquisition in Pakistan,
Vivendi interest in Zain acquisition and acquisitions in India
AT&T interest in Acquisition in India
Docomo investment in India

Selective Local Acquisition for Spectrum
Softbank’s intention of acquiring Willcom for its unused spectrum

Might Sell Off to Global Operator
Telecom Italia may be acquired by Telefonica
Verizon may be acquired by Vodafone ( from current 45% stake)

Expand Horizontally into Other business in their Operating Countries – Walmartization
China Mobile Investment in Shanghai Pudong Bank

Operators in Left Bottom Quadrant

Majority of the operators are emerging market operators in this quadrant. Some incumbent western operators are also there .

The Operators in this quadrant will be under pressure to acquire , to get acquired or to pursue diversification.

Bharti is very aggressive and pursuing acquisition candidate – First MTN and now Zain
Reliance expanding Horizontally – Walmartization : Banking, Financial Services and Insurance
Idea is likely to be acquired either by their Minority stake holder Axiata or by some other group
Axiata either may pursue more acquisition or may get acquired by Vodafone
STC has investment in Maxis and might convert it to operating control

Meanwhile some Opportunistic operators might follow Private Equity Approach and play selective local or regional acquisition to increase their attractiveness and value for future acquisition. ( “Synergy less” acquisition and bidding for new licenses for building spectrum and licensing assets)
Idea acquiring Spice
Maxis acquiring Aircel
Essar acquiring Warid Uganda, Congo

Telecom Operators as Walmart of Services

Telecom Operators have unique opportunity to become a one stop shop for digitized services – Media, Banking, Insurance, Health Care, Education, Information, Utilities for their subsribers or customers .

Telecom Operators will have advantage of “Economics of Subscribers” and “Economics of Access” by providing one stop shop for these services to Subscribers.

Already some experiment is happening and some Operators are entering into these seemingly unrelated businesses. They might utilize their telecom infrastructure (“ Economics of Access”) to provide these services to their subscribers (“ Economics of Subscribers")

How will this trend unfold and which Operators can become Walmart of Services” ?
Typically Operators in bottom quadrants ( both left and right ) are experimenting with this

Media – Reliance, Tata, Vivendi
Banking – China Mobile, Reliance,
Insurance – Reliance, Bharti, Tata

Education and Health Care never had economics of scale as they have to be delivered locally and didn’t had back office or operational infrastructure which could be consolidated across regions. Now with possibilities of Mobile Education and Mobile Health, the delivery need not be local; hence, they can have economics of scale at few locations. Telecom Operators can capitalize on this opportunity.

Utilities can transmit electricity without wires (wireless) and then Telecom Operators can be providers for utilities too…( That will take time… a decade or so… but possibilities are there )

Telecom Sector with more than hundreds of M&A , diversifications and new business models will be sector to watch in this decade. And emerging market operators will be at least equal if not more in their share of driving changes in Telecom Sector. Telecom World will not be the same again !!