Deal activity was up this past quarter with Asian operators, once again, proving the most ambitious.

Telecom deal activity picks up

Deal activity in the telecom sector picked up in Q1 2012, with deal value (where deal value is disclosed) totalling US$13.8b, up from just under US$10b in Q4 2011. In the three months to March, there were a total of 117 deals, compared to 104 in the three months to December 2011.

Average deal value for the quarter was US$118m per transaction, and Americas was the leading region worldwide in terms of total deal value. However, the Europe, Middle East, India and Africa (EMEIA) region showed the greatest deal volume.

Figure 9. Top Telecoms M&A by deal value — Q1 2012

Largest telecom deals this quarter

The quarter’s largest deal was Bell Canada’s acquisition of Astral Media, which owns several cable TV channels. This is the latest chapter in Bell Canada’s diversification into media: in 2010, it acquired CTV, Canada’s largest private sector broadcaster.

In the US, rising bandwidth demands have driven the quarter’s second-largest deal, privately held Zayo Group’s takeover of AboveNet, which provides bandwidth connectivity to carriers and enterprises. The combination of the two carriers will create a dense fiber footprint throughout North America and Europe.

European players are showing a continued appetite for greater exposure to developing markets. In February, France Telecom made a preliminary agreement to acquire most of the stake held by Orascom Telecom in their Egyptian mobile joint venture, Mobinil, raising France Telecom’s stake to up to 95%. The French incumbent has since stated that it wishes to keep 15% of Mobinil in Egyptian hands: a number of options are available to achieve this.

Figure 10. Telecom M&A deal value by area − Q1 2012

Mobile assets reshuffled in Austria

Consolidation remains an important theme, particularly in Europe, where competitive intensity and macroeconomic anxieties are forcing operators to look for scale benefits. Austria, where four mobile operators serve a market of 8 million people, has long been regarded as a prime consolidation candidate.

In February, Hong Kong-based Hutchison Whampoa agreed to acquire Orange Austria for US$1.7b. The acquisition of the number three player by the country’s smallest mobile operator is expected to generate synergies of US$500m.

However, Hutchison Whampoa is also divesting assets to Telekom Austria as part of the deal, including frequencies, base station sites, mobile operator sub-brand YESSS! and certain intellectual property rights in a deal valued up to US$513m.¹⁴

While the transactions help rationalize Austria’s mobile market structure, deals may delay the auction of 800 MHz spectrum as regulators investigate the impact of a smaller number of players bidding for spectrum on the auction process.

Developed market operators remain active

Deal activity remained active in Japan, South Korea and Australia in the first quarter. In Japan, leading operators made acquisitions to strengthen their core businesses. In January, NTT Communications acquired a 74% stake in Netmagic Solutions, an IT services provider that operates seven data centers in India. The deal helps expand NTT’s capability in providing one-stop ICT solutions in the Indian market while also accelerating its cloud services offering.

According to recent news reports, India’s Reliance Communications also plans to divest a 75% stake in the FLAG submarine cable system to meet regulatory requirements to change its undersea cable assets to a trust rather than a company. In January, Reliance Industries said it would sell part of its stake in a regional Indian TV broadcaster to TV18 Broadcast Ltd.

Consolidation commences in Indonesia, continues in Australia

High levels of competition are driving consolidation in the Indonesian mobile sector. Sampoerna Telekomunikasi Indonesia (STI) has acquired a 10% stake in mobile operator Bakrie Telecom as part of a share swap deal between the two CDMA mobile operators.

Synergies resulting from the deal are expected to enable Bakrie Telecom to scale quickly as competition increases in the mobile data market. Meanwhile, UAE’s Etisalat is planning to offload its 13.3% stake in XL Axiata, Indonesia’s third-largest mobile operator.¹⁵

In Australia, Singtel Optus acquired Vividwireless Pty, a WiMax operator, for US$246m. The deal gives the Australian operator spectrum in the 2.3 GHz band, thereby increasing its network capacity and complementing existing plans to roll out LTE in metropolitan areas. Meanwhile, Southern Cross Telco, a subsidiary of wholesale communications provider M2 Communications, has acquired Time Telecom to help strengthen its position in the small-to-medium enterprise market.

Figure 11. Top Asia-Pacific telecoms M&A — Q1 2012

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¹⁴“Telekom Austria group agrees to acquire assets of orange austria for a maximum amount of EUR 390m,” Telekom Austria press release, 3 February 2012.

¹⁵“Etisalat seeks XL Axiata exit,” TelecomsEurope.net, 14 March 2012.