Inside telecommunications: 3Q 2012 trends

Global roundup of mergers and acquisitions activity

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Asia-Pacific led the way in deal activity, with deal value totaling US$14b.

Global M&A activity in the sector picked up in Q3 2012, standing at US$23.8b, up 29% from the previous quarter.

During the three months to September, 108 transactions were announced, compared to 91 in the preceding quarter. Average deal value increased by 9% quarter-on-quarter to reach US$220m for Q3.

In regional terms, Asia-Pacific led the way, with deal value totaling US$14b, while EMEIA was slightly ahead of the Americas, with transactions totaling US$4.9b during the quarter.

The largest deal during the quarter was China Telecom’s agreement to acquire certain CDMA mobile network assets owned by its parent in August. The move is expected to help reduce costs over time, given continuing rises in CDMA network lease fees, while giving China Telecom direct control over future network investment decisions.

The second-largest deal saw Russia’s Altimo, the telecoms arm of Alfa Group, increase its stake in Russian mobile operator Vimpelcom by acquiring a 14.8% stake from Weather Investments II. Altimo now has 40.5% of voting rights.

Mobile players position themselves for data demand

Some of the leading deals during the quarter were driven by mobile operators looking to cement their positions as demand for data services continues to rise. In August, AT&T agreed to acquire NextWave Wireless, which holds spectrum licenses in the
Wireless Communications Services (WCS) and Advanced Wireless Services (AWS) bands.

TeliaSonera acquired Kazakh WiMAX operator Alem Communications for US$170m, giving the Scandinavian operator access to 2.6 GHz spectrum and WiMAX networks in six major cities.

Consolidation across market segments is also becoming an important driver of in-market deals. Mobile operator Millicom’s Paraguay subsidiary acquired the assets of Cablevision in July.

Increasing operator moves into new market segments in Asia-Pacific

In recent quarters, established East Asian operators have moved into adjacent market segments, with technology applications seen as a route towards a wider presence. In August, China Mobile acquired a minority stake in Anhui USTC iFlytek, a Chinese IT company that creates voice recognition software that converts text into speech.

Singtel is building its presence in mobile app platforms with the acquisition of Pixable, a New York-based social photo aggregator. More than 4 million users have installed its service and engagement rates are high. The platform helps Singtel enhance the way mobile users are able to discover and store content from a range of devices.

Having acquired IT services companies in Australia, India and the UK in recent months, the Japan’s NTT took full control of Centerstance, a US-based consulting company. The move is set to expand NTT’s capability in cloud services as existing enterprise customers migrate to new solutions.

NTT’s mobile subsidiary has also been active on a number of fronts during the third quarter. In August, NTT DoCoMo Pacific acquired a Guam-based multi-service provider, MCV Broadband, owned by Guam Holding Corp., the country’s sole cable operator.

Earlier in July, NTT DoCoMo joined forces with vendors Fujitsu and NEC to create a joint venture, Access Network Technology. The new entity will produce smartphone chips and is driven by NTT DoCoMo’s need to reduce reliance on foreign chip vendors.

Asia-Pacific telcos target opportunities in health care technologies

In July, NTT DoCoMo also announced a joint venture with Omron Healthcare, a Japanese medical equipment maker. NTT DoCoMo has taken a 66% stake in the venture, DoCoMo Healthcare Inc., which is set to design and develop innovative services such as cloud-based health care instruments for patients.

In September, South Korea’s SK Telecom acquired 49% of China’s Xi’an Tianlong Science and Technology Co., which produces medical equipment.

Consolidation comes to New Zealand

The largest deal of the quarter in Asia-Pacific saw Vodafone New Zealand acquire rival mobile operator TelstraClear for US$660m in July. The transaction brings together TelstraClear’s fixed-line business and corporate clients and Vodafone New Zealand’s mobile offering and retail subscriber base.

Prior to the deal, TelstraClear was already the market’s second-largest full-service player, with more than 300,000 customers. For Australian owner Telstra, the disposal adds to its growing stockpile of cash. Meanwhile, Vodafone extends its presence into residential fixed-line services; while TelstraClear’s corporate client base also allows the acquirer to widen the reach of its enterprise solutions.

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