Industry consolidation and convergence: What’s driving telecom M&As?
Telecom has always been an industry built on change and innovation, in both the wireline and wireless sectors. It’s also an historically competitive market where a combination of increasing demand and challenging margins has brought many operators to the merger and acquisition (M&A) table to stabilize revenue, expand offerings, leverage bundled services and prepare for the next phase of the communications revolution: 5G.
In recent years, mega-mergers have become more common all over the world. Where four or more operators were once competitive, M&A has reduced that number to three or fewer. At the same time, these consolidations have created new entities that operate in both wireline and wireless spaces. We have seen seismic shifts in the service provider landscape in 2016 and 2017, including these few highlights:
- In the semiconductor sector, Broadcom’s $105 billion hostile bid for Qualcomm brings together the third and fifth largest chipmakers, after Intel and Samsung – if consummated
- Will AT&T complete its $86 billion acquisition of Time Warner despite regulatory and legal challenges?
- Charter completed its $71 billion acquisition of Time Warner Cable and Bright House in May 2016
- CenturyLink successfully acquired Level 3 Communications for $34 billion in November 2017 to broaden their consumer, enterprise and government IT services portfolios in 350 metropolitan markets in the United States
- Liberty Global and Vodafone merged to create a national video, broadband, mobile and B2B provider in the Netherlands worth $29 billion
- Verizon completed its acquisition of Yahoo for $4.8 billion, gaining control of its massive global IT footprint and infrastructure
- Verizon acquired AOL for $4.4 billion to gain a foothold in digital and video platforms
- AT&T acquired Nextel for almost $2 billion to gain access to Mexico’s growing wireless market
What’s driving telecom M&A?
There is a varied set of drivers, of course: some are acquiring internet or content assets; some are international expansions; some combine wireline and wireless operations; and some are pure consolidation plays within a sector.
One underlying factor that makes the numbers work is the savings from efficiency gains due to having a common infrastructure supporting a larger customer base – or supporting a wider range of services. For example, wireless operators must lease dark fiber and circuits to connect cell sites to mobile switching centers – a significant expense that can now be kept in-house by a combined wireline/wireless operator.
Getting positioned for the next big thing
Looking ahead, an important driver to M&A activity is the imminent arrival of 5G. While 4G/LTE is expected to dominate in the fastest-growing markets for the next decade, 5G will introduce innovations that redefine network architectures and provide a platform for new revenue opportunities.
The investments required to deploy 5G will mean that the biggest players in the market will be best positioned to capitalize on its potential. And it’s not only for wireless customers, either; 5G will be a crucial connectivity driver in the Internet of Things (IoT) and the ultra-low latency required for next-generation network applications, such as driverless vehicles. The already-blurred lines between wireline and wireless networks will be—for all intents and purposes—finally erased.
Technology partners matter more than ever
As existing network models change to unleash the potential of new opportunities and evolving economics, the role of the technology solutions provider becomes increasingly critical. Converged networks call for solutions from a partner that has expertise in both wireline and wireless networks.
CommScope is such a partner, with decades of experience as an innovative market leader in broadband, wireless and data center connectivity. The new competitive environment for MSOs and other network operators will demand such expertise across all its dimensions. As service convergence drives consolidation, so does consolidation drive the need for complete solutions.
5G is a convergence play, and poised to change the industry landscape
- Data center computational power is massively growing to support driverless vehicles, natural language processing (Alexa, Google Home), AI, business analytics, IoT and more
- Mobile connectivity with gigabit speeds and ultra-low latency is planned to access the increasing intelligence in the cloud
- New spectrum such as the CBRS (3.5GHz) and 28GHz bands are opening up
- Technologies such as CRAN and small cells will be able to deliver far more bandwidth
- Extensive fiber optic access networks for backhaul and fronthaul will be required
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