Valuation drivers in the telecommunications industry
Goodwill is estimated as the residual between the value of the business as a whole (the purchase price) and the sum of fair values assessed for identifiable tangible and intangible assets of the business, less the fair value of liabilities assumed.
Goodwill in the telecommunications industry often includes the following elements:
- Post-acquisition subscriber base development. Any post-acquisition subscriber growth that cannot be assigned to existing subscribers might only be captured in goodwill.
- Bundled offers (convergence synergy). The emergence of "quadruple-play" offers — bundles of fixed telephony, broadband internet, mobile telephony and TV — are likely to lead to gains in market share and average ARPU, and a reduction in churn rates. Mergers in the telecom sector tend to build on existing "triple-play" offers. As a result, goodwill may integrate the future benefits of bundled services.
- Access to powerful distribution networks. Acquiring an operator which owns sales outlets enables the acquirer to offer its services to a wider population.
- Geographical expansion. Winning new markets for the acquirer will enlarge its geographical coverage, and enhance its brand value.
- Buy vs. build. Acquiring a profitable business with a large, established network may lead to future growth, saving time and money that would have been required to build a similar network from scratch.
- Defensive strategy. Acquiring a competitor may enable the acquirer to reduce price wars in certain geographical areas, or to protect itself against acquisition by a larger operator.