Top telecoms deals of 2015

Observers have talked of the potential for consolidation in Africa’s telecoms industry, with a report by Moody’s Investors Service last May predicting how the market might change.

Moody’s said it anticipated that consolidation would ramp up in African markets as operators sought opportunities to cut costs and grow their market share, especially third- and fourth-Tier operators – and that activity would take place in countries with upwards of four operators or where there are telecoms players with a market share below 15%.

“We expect regulators… to favour transactions that support market stability and further capital investment and the expansion of service offerings,” said Moody’s.

The report added that “cross-market consolidation will be less challenging for the larger regional operators to pursue where greater geographic diversification and sizable market shares can be achieved”, while European operators might leave African markets in which they have relatively small shares as they refocus on domestic markets in the face of revenue pressures.

One European operator that has continued to make M&A moves in Africa is Orange. Already this year it has struck a deal to acquire Bharti Airtel’s operations in Burkina Faso and Sierra Leone, and agreed to buy 100% of mobile operator Cellcom Liberia. This follows transactions last year to increase its stakes in Mobinil in Egypt and Meditel in Morocco.

In January, the new owner of the assets of Nigeria’s fixed-line operator Nitel said it had spent $1 billion on the company and plans to hire 4,000 employees as it rolls out 4G services later in 2016. Natcom Development and Investment, chaired by Nigerian banker and investor Olatunde Ayeni, bought the assets in 2015 for $252 million from the government, after a number of failed attempts to privatise the company, dating back to 2009.

Several deals came to fruition in Asia-Pacific over the last year that involved data centre and cloud assets. One of these was the completion of Telstra’s Pacnet buy, leading to the company doubling its number of customers in Asia and adding an intra-Asian cable network and 29 data centres.

Paul Abfalter, director of Pacnet integration at Telstra, says that the tie-up is proceeding smoothly so far. “Since completion in April, our customers have responded very positively,” he says. 

“We are tracking ahead of our targeted synergies, and we have combined the teams and customer-facing aspects of the two companies very successfully.”

Colt Group separately wrapped up its purchase of KVH as it moved into 2015, giving it a set of data centre facilities across several key Asian markets, including Japan, Singapore, Hong Kong and South Korea. 

Referring to the completion of its deal, Colt cited how the Asian IT market was hotting up: “With the IT industry in Asia growing at 12% each year, the acquisition of KVH will act as our launch pad for growth in Asia and beyond,” Colt said. 

“We are seeing increasing demand from our customers for network and data centre capabilities in the business hubs of Asia.” 

Such moves help serve the needs of multinational customers in different regions, it added.

Meanwhile, on Telstra’s part, its move was far from its only acquisition activity in a bid to reposition itself as a technology company. 

Aside from its series of buys to bolster its new health business, its US-based subsidiary Ooyala – a provider of video, analytics and advertising technology that Telstra acquired the previous year – acquired Nativ, a provider of cloud-based media logistics and workflow software and services, to aid the drive towards cloud services. 

Telecoms players continue to seek M&A opportunities in the European market, with completion of a number of major deals still pending in markets such as the UK. Potential new moves are also on the horizon, with, for example, Orange in discussions about buying Bouygues Telecom.

But the recent breakdown of the merger between TeliaSonera and Telenor in Denmark means regulatory scrutiny may make the outlook for M&A a bit more uncertain. Towards the end of 2015, the planned merger between mobile operators Three and O2 in the UK became the subject of an in-depth investigation from Brussels over competition concerns, with a decision expected in the first few months of this year. On the other hand, the UK’s Competition and Markets Authority approved BT’s £12.5 billion takeover of EE in the same market in a fixed-mobile play.

“The likelihood of approval if you’re going for a consolidation deal is becoming more difficult to predict,” says John Delaney, an analyst at IDC. However, he does not believe things are entirely unpredictable because individual deals all have their own specifics and some are clearly more of a risk to competition than others. “That’s really why the Danish rejection doesn’t necessarily mean that’s the end of consolidation,” he says.

In other activity, Vivendi grew its stake in Telecom Italia to over 20%, while Altice and French player Numericable-SFR entered into final agreements with Vivendi over the acquisition of the 20% stake it owned in Numericable-SFR. 

And Italian operator Wind, through its subsidiary Galata, agreed to sell over 7,000 telecoms towers in Italy to Abertis Telecom Terrestre. 

Indeed, Matt Walker, an analyst at Ovum, believes the industry’s tower market could be a “hotspot” of M&A activity for some time, as a quick means to raise cash without clear strategic downsides.

Activities involving mega-deals have continued to take centre stage in the US over the past year, as telecoms and cable players have sought moves to strengthen in the face of ever-growing competition from over-the-top (OTT) providers.

“We are seeing companies that have grown dramatically fast whose tentacles have spread everywhere, the likes of which we’ve never seen before,” says Tom Mannion, a US-based director of valuation and business analytics at BDO, an international network of public accounting, tax and advisory firms. He refers to how the disruptive presence of internet giants such as Facebook, YouTube, Google and Apple “has changed the game dramatically”.

With this backdrop, big players have been seeking deals to boost their competitive positions. The proposed merger between Comcast and Time Warner Cable broke down last April amid regulatory concern about its effect on competition, but a newly proposed tie-up between the latter and Charter Communications is now awaiting federal approval. Meanwhile, AT&T completed its acquisition of DIRECTV last summer.

Verizon also concluded its $4.4 billion acquisition of AOL, thus acquiring a company with a strong basis in digital content and advertising platforms to culminate in what Verizon describes as an OTT media platform for creators, consumers and advertisers. The company said the deal would also boost LTE wireless video and “support and connect to” its internet of things (IoT) platforms, thus “creating a growth platform from wireless to IoT for consumers and businesses”.

In light of these dynamics in the market and the continued competition from OTTs, it will be interesting to see how further M&A activity pans out in the US in 2016. In Canada, meanwhile, one of the biggest events of 2015 was Zayo Group’s proposed acquisition of Allstream for $348 million.

Source for all tables: Capacity Intelligence