Ahead of Mobile World Congress 2018, Daniel Kurgan, CEO, BICS examines recent M&A activity and questions if, how, and why, this will be central to the future success of telecoms and global connectivity.
Telecoms M&A activity remained on a steady course last year, with Verizon showing its mettle with not one, but three major buy-outs. The communications and technology giant broadened its portfolio with the addition of new assets: Sprint Path, which holds a range of licenses for fixed and mobile wireless spectrum, web services provider Yahoo, and network and comms specialist XO.
If M&A activity since the new year is anything to go by, we can certainly expect this to be a hot topic both at MWC and throughout the year. Even if deals are not concluded at the show, there’ll likely be talking, bidding and closures in this area through 2018, as telecoms players seek to diversify, streamline costs, and gain new resources to monetise or launch services.
This has been illustrated perfectly by a number of recent buyouts reported within days of each of other. First, Danish telecoms operator TDC agreed a $2.5 billion takeover of Swedish Modern Times Group’s broadcasting and entertainment business. This was followed by Orange’s expansion into e-health with the purchase of Enovacom, which owns a software suite supporting data exchange for the healthcare industry. The M&A triplet was topped by Vodafone announcing its entrance into talks with cable TV company Liberty Global, allowing the former to offer triple-play services to its customer base.
The move to triple and quad-play services will likely gain traction this year, as traditional telecoms providers enter strategic partnerships enabling them to combine broadband, TV, mobile services and fixed landline, into one package. This not only adds value for the consumer – whose once siloed contracts will be consolidated into a single subscription with a single provider – but also holds huge advantages for the operator.
For one, bundling subscriptions will make available a whole new bundle of data to the provider. Where once a telecoms company was able to gather and utilise information from subscribers’ voice and SMS usage, by gaining media and content assets they are now able to analyse data from a wide range of sources. This will allow these players to better understand their customers and tailor services to their needs and preferences, thus boosting customer loyalty and reducing churn. Business intelligence and big data equals big profit opportunities! In addition, it enables them to generate new and exciting revenue streams to offset declining returns from traditional services.
The IoT opportunity
Branching into content and media is just one way in which legacy players are diversifying business. Revenues from traditional services are on the decline, meaning action is essential if communication services providers want to compete with the new breed of digital service providers. Telecoms players must redefine their position in the market, moving away from offering basic services and instead recognising the crucial role mobile connectivity will play in building and sustaining the global digital economy.
By 2021, mobile data traffic will represent an estimated 20% of total IP traffic. Much of this will be smartphone traffic, however, machine-to-machine (M2M) connections will represent 29% (3.3 billion) of total mobile connections, up from just 5% in 2016. The IoT – and IIoT – opportunity for telcos is, therefore, huge. Vodafone kick-started activity way back in 2014, buying out Cobra Automotive Technology, a vehicle tracking and connected car products provider. Reliable, global connectivity is an essential element of any successful IoT deployment, so we shouldn’t be surprised to hear about partnerships between telcos which operate and manage infrastructure and an extensive breadth of companies moving into the IoT ecosystem.
Global reach for global connectivity
Mobile World Congress is no longer a show about mobile, but about connectivity and the huge range of technologies and use cases it empowers. Where once handset makers and device announcements dominated the halls and headlines, the show now welcomes a motley crew of any and all parties reliant on connectivity to improve or launch new services, and stay ahead of the competition.
M&A activity will play a key role in the success or failure of these companies, as well as traditional telcos. Without the expertise and network infrastructure, we can expect to see a growing number of partnerships between these parties and the telcos which have communications architecture and global reach. On the other hand, telecoms players must improve and enhance network infrastructure to ensure it is 5G-ready and capable of supporting the billions of IoT devices and sensors will which enter the market.
As in previous years, 5G will be at the forefront of all industry minds and business strategies in 2018. Following the 3GPP’s approval of the non-standalone 5G NR specification in December, attention has now turned to the practicalities and investments required to progress 5G opportunities. Updating connectivity infrastructure will require substantial capital and IoT expertise – again, something which will likely be secured through mergers, acquisitions and partnerships.
So, whether deals are announced at MWC 2018, or just mulled over or finalised away from the public eye, M&A will be a key driver of growth for the whole telecoms industry, in Barcelona and beyond.