What’s the State of Telecom Consolidation?
In our “always on, always connected” world where connectivity is a must, high demand for new services is coming from both consumers and businesses. And the competition to meet those demands has gotten much more severe, with new entrants eager to jump in, often meeting the demand with services that are faster and cheaper. In fact, the average revenue per user (ARPU) for telecom has been on a consistent decline for the past several years.
In the wireless business where there is a 95% saturation rate in mobile phone ownership, it’s becoming harder and harder to find new customers. Where carriers once relied on a consumer market of broadband, TV and other data services to fill their coffers, growth has slowed and forecasters are expecting an annual increase in the consumer market of only around 0.6%.
Carriers are now turning their focus to the B2B market, which includes everything from home offices to large enterprises, with anticipated growth of 2.6% annually, mostly due to demand for mobile data and addressable IT services. This anticipated growth in the enterprise market is great news for carriers — or is it?
As in the consumer market, where players like Whatsapp, Viber and Skype began offering what once were considered the sole domain of telecom-specific services, now we’re seeing web-scale or over the top (OTT) companies such as Amazon and Facebook offering advanced enterprise communications solutions. According to a recent report from analyst firm Analysys Mason, in order for communications service providers (CSPs) to stay in the game, they need to enter the information and communication technology (ICT) markets to counter these competitive threats to their revenue stream.
In 2017, telecom companies including AT&T, KPN, Windstream, Telia and Telstra all made moves to bolster their position in the ICT marketplace via acquisition. In 2016, telecoms spent $224 billion on mergers and acquisitions, an increase of 137% over the previous year, according to Capital IQ.
Acquisitions certainly aren’t anything new to the telecommunications industry, as seen in the chart below from IMAA. Yet in recent years, they’ve pivoted from the consolidation of direct competitors to the acquisition of companies that can help a carrier expand its service offerings.
So, what does M&A mean for most carriers?
If you’ve been in the telecom space for a while, chances are you’ve lived through one or more mergers and/or acquisitions. Post-acquisition, the day-to-day operations of the business get pretty complicated. Just as there most likely is someone else in the newly acquired company that does the same job that you do, that same probability goes that there are going to be duplicated processes, systems and databases as well.
Companies know this going in and are prepared to take the necessary steps to weed them out. Entire teams are often put together for just this purpose — to look at the entire new organization, its systems, its people, and its processes — and establish a plan.
If history is any indication, and with inconceivable combinations still to be seen, consolidation in the telecom industry isn’t going away any time soon. What will be most important is how these newly conceived companies manage their consolidation over the long haul.