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Inside Telecommunications: July-September 2011 - A global roundup of mergers and acquisitions activity - EY - Global

Inside Telecommunications: July-September 2011

A global roundup of mergers and acquisitions activity

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Jonathan Dharmapalan
Global Telecommunications Leader
Adrian Baschnonga
Global Telecommunications Senior Analyst
Steve Lo
Global Telecommunications Center: Beijing
Holger Forst
Global Telecommunications Center: Cologne
Prashant Singhai
Global Telecommunications Center: Delhi
Serge Thiemele
Global Telecommunications Center: Johannesburg
Wasim Khan
Global Telecommunications Center: Riyadh
Mike Stoltz
Global Telecommunications Center: San Antonio

Although deal activity has been muted compared to the preceding quarter,there have been a number of transactions — both in-market consolidation and moves into adjacent markets.

Telecoms mergers and acquisitions worldwide

From 1 July 2011 through 30 September 2011, there were 127 announced mergers and acquisitions worldwide, with a total deal value (where deal value is disclosed) of US$13.8b, compared to 183 announced deals with a total deal value of US$41.8b during Q2 2011.11

The largest deal of the period was América Móvil's US$6.5b acquisition of the remaining 40% of its Telmex wirelineunit, which represents the final step to consolidate the company's operations. This allows the Latin American giant to realize economies of scale, driving administrative synergies while also positioning it to offer bundles of fixed and mobile services.

Top telecoms M&A by deal value — Q3 201112

Top telecoms M&A by deal value — Q3 2011

Q3 2011 M&A deal number and value by area13

Q3 2011 M&A deal number and value by area

In the US, Windstream, a Tier 2 integrated operator, continued its expansion through the acquisition of PAETEC, a competitive local exchange carrier providing services primarily to business customers in 86 of the country's top 100 metropolitan areas. The combined company will have US$6.1b in revenue and will have a 100,000 routemile fiber network once the deal is done.14 This is expected to enhance its existing portfolio of metro fiber, Ethernet, data center and managed services, including cloud services.

In Europe, the largest deal was Polish operator Netia's acquisition of triple-play provider Telefonia DIALOG and corporate telecommunications provider, Crowley Telecommunications Services, for more than PLN1 billion. This deal, which is still subject to regulatory approval, reinforces the alternative operator's status as the country's second largest fixed-line operator.15

Operators in Asia-Pacific make bold moves

It has been a busy quarter for transaction activity in Asia-Pacific. The Japanese telecoms sector has been in the news as various entities consider offloading stakes in operators in order to pay for disaster recovery in the aftermath of Japan's earthquake.

In August, Japanese electricity generator TEPCO revealed plans to restructure its assets, including its 8% stake in mobile operator KDDI, to raise funds for the Fukushima Daiichi nuclear clean-up.16 This followed a bill presentedin the Japanese Parliament in July stating that stakeholders would be asked to cooperate as part of compensation efforts.17

Meanwhile, the ruling Democratic Party of Japan has gone on record to say that the government should sell some of its shares in NTT Corp to pay for reconstruction.18 Despite this, operators in Japan and other developed Asian markets are continuing to make bold moves into adjacent sectors through acquisitions. The region's largest deal of the quarter saw Japan's SoftBank acquire a 44% stake in India-based mobile advertising network provider InMobi, which represents one of the largest investments to date in the mobile internet space worldwide.

For its part, inMobi is confident that the investment will boost product innovation and stimulate further acquisitions throughout the mobile advertising value chain.19 Earlier in the quarter, SoftBank acquired a 44% stake in Japanese wind power specialist Green Power Investment.

Japan's NTT DOCOMO has also been busy ramping up its value-added services proposition in the region. In August, the mobile operator acquired a 25% stake in Vietnam's largest mobile content provider, VMG Media. Following the deal, DOCOMO will share its expertise with VMG in areas such as content distribution, while at the same time boosting its mobile content profile in the region. In July, NTT DOCOMO disclosed plans to set up a joint venture with Chinese search engine Baidu to distribute mobile phone games and other related content. Baidu, China's largest search engine, will hold 80% of the joint venture as it seeks to move beyond its core search advertising business.20

Also in the region, South Korea's KT Corp was reported to be in negotiations to purchase Enswers Inc., a Seoul-based video-search technology specialist, as part of plans to boost its cloud computing business.21

While established operators in the region target acquisitions in fast-growing adjacent market segments, there are signs of consolidation in the WiMAX market. In September, Taiwanese WiMAX player Vee TIME announced it would buy out local rival Vmax Telecom Co., Ltd. for US$47.7m as part of plans to expand its network coverage and customer base. The deal will reduce the number of national WiMAX players from six to five and follows calls earlier this year from the Taipei Computer Association urging existing players to merge to generate economies of scale.22

Expectations rise around the privatization of Vietnam's telecoms sector

Announced earlier this year, a 30 June deadline was moved to 26 August due to legal issues. Rivals have asserted that the merger would undermine competition and the National Telecommunications Commission (NTC) now hopes to announce a decision before the end of October23 In other news, expectations are rising around theprivatization of Vietnam's telecoms sector.

In September, the Ministry of Planning and Investment underlined that the privatization process for operators Viettel and MobiFone would resume in 2012 after a recent hiatus.24





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11 Note: deal value total excludes deals where value is undisclosed.
13 ThomsonOne
14"Windstream to acquire PAETEC" PAETEC, 1 August 2011.
15"Netia takes over Telefonia Dialog, Crowley" Telecompaper, 30 September 2011.
16"Tepco Planning to Sell Y200 Billion of KDDI Shares," Dow Jones Business News, 2 September 2011.
17""Tepco Falls in Tokyo as Investors May Help Compensation," Bloomberg, 27 July 2011.
18Japan DPJ Okada: Govt Should Look To Sell Some Japan Tobacco, NTT Shares," The Wall Street Journal, August 2011.
19SoftBank Corp invests $200m in InMobil: One of the largest investments in the mobile internet space globally" InMobil press release, 15 September 2011.
20"Baidu, NTT DoCoMo to Set UP JV in China," The Wall Street Journal, 8 July 2011.
21"KT in talks to buy Enswers to bolster cloud computing," Korea Times, 18 September 2011.
22"Vee Time to acquire Vmax Telecom," Taipei Times, 26 September 2011.
23NTC sticks to due date for merger review" Business World Online, 9 October 2011.
24"Viettel, MobiFone, Habeco and Sabeco to Be Listed in 2012?" Vietnam Business News, 9 September 2011.

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