Inside telecommunications Issue 8

Mergers and acquisitions

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The last three months of 2012 saw a surge in deal activity, which totaled US$47.8bn for the quarter, up 101% on the deal value registered in Q3 2012.

There were 168 deals accounted, up from 108 in the preceding quarter, with average deal value standing at US$294.8m.

In terms of deal activity by region, Japan led the way on account of Softbank’s US$20.1bn bid for US operator Sprint and two other sizeable transactions.

The US was also the scene of the quarter’s second-largest deal, the merger between US mobile operators T-Mobile and MetroPCS announced in October.

Telecoms deal value by area, Q4 2012

Telecoms deal value by area, Q4 2012

Source: EY analysis.

Deal-making by Asian operators was more subdued than in the preceding quarter, the highlight being China Unicom’s acquisition of fixed-line assets in Southern China from its parent company for US$1.9bn.

Deal activity in Europe, Middle East, India and Africa (EMEIA) was broadly in line with Q3 2012.

Tower deals remain an enduring feature of the transactions landscape and Q4 2012 saw a number of deals struck worldwide.

Consolidation underway in US mobile market

US mobile operators announced US$26bn worth of transactions between October and December.
Japan-based Softbank’s acquisition of a 70% stake in number three U.S. mobile operator Sprint was the largest telecoms deal of 2012 at US$20.1bn.

This transaction comes amid a backdrop of consolidation within the US mobile market.

The US mobile transactions announced during the fourth quarter signal far-reaching change in the competitive landscape, as the need for spectrum drives smaller players to seek greater scale. However, following the collapse of the proposed AT&T and T-Mobile tie-up in 2012, regulatory approval is by no means certain.

Tower deals make their presence felt in Europe

The fourth quarter saw a number of tower deals struck worldwide as operators look to free up cash by divesting non-core operations and tower companies take advantage of favourable borrowing conditions.

In recent quarters, a number of deals have taken place in Africa and the Americas. In the last three months of 2012, some important transactions also took place in Europe.

In November, KPN sold 2,000 of its mobile towers in Germany to US-based American Tower for US$501m. In the same month, French mobile operator Bouygues Telecom announced it was selling 2,166 towers to Antin Infrastructure Partners for US$266m.

Africa remains an important source of tower deals too. In October, towerco IHS Nigeria entered into an agreement with MTN to acquire 1,758 base stations in Cote d’Ivoire and Cameroon for a consideration of US$284m.

Asian operators maintain their foreign focus

Larger Asian telcos remain in footprint expansion mode, as they eye opportunities in adjacent TMT market segments.
Viettel Global, the overseas arm of military-run Viettel in Vietnam, was selected as the third mobile operator in Cameroon in December, with plans to invest US$400m in a national network.  

Korea’s KT continues to seek leverage growth opportunities abroad, announcing in December that it had submitted a preliminary bid for Vivendi’s 53% stake in Moroccan incumbent Maroc Telecom.

Japan’s NTT DoCoMo acquired a 19% stake in Rsupport Co. Ltd, a Korean provider of remote IT support services.

Top telecoms M&A in Asia-Pacific, Q4 2012 1

Date Bidder Target Stake (Value) Business nature of target
21 Dec 2012 SK Telecom (South Korea) SK Marketing & Company 50% ($178 million) Marketing and effective communication services
13 Dec 2012 Axiata Group (Malaysia) Latelz Co. Ltd. (Cambodia) 90% ($163 million) Mobile operator
12 Dec 2012 NTT Data Business Solutions (Japan) Innogence (Australia) NA SAP business analytics
11 Dec 2012 NTT DoCoMo (Japan) Rsupport Co. (South Korea) 19% ($13 million) Remote support service for computer systems
27 Nov 2012 VelaTel Global Communications (US) China Motion Telecom (HK) Limited (Hong Kong) 100% ($6 million) MVNO business
21 Nov 2012 China Unicom (China) Unicom New Horizon Telecommunications (China) 100% ($1,953 million) Company operating the fixed-line telecoms network assets
24 Oct 2012 Telstra Corp (Australia) Adam Internet Pty (Australia) 100% ($52 million) Internet service provider
15 Oct 2012 Softbank Corporation (Japan) Sprint Nextel Corp (USA) 70% (35,544 million) Wireless communications service provider
5 Oct 2012 Softbank Corporation (Japan) Avex Entertainment Inc. (Japan) 40% (38 million) Music recording company
1 Oct 2012 Softbank Corporation (Japan) eAccess Limited (Japan) 100% ($4,436 million) Wireless operator counterpart

Consolidation and restructuring continues across Asia-Pacific

While footprint expansion remains a key sector theme in Asia, consolidation is also playing an important role in sustaining industry growth. In both developed and developing markets, operators are improving their market positions and exploiting cost synergies by acquiring rivals.

In December, Malaysia’s Axiata Group acquired 90% of number two Cambodian mobile operator Latelz Co. Ltd for US$155m in order to merge it with its existing Cambodian business, Hello Axiata.

In the Australian market, established players are targeting specific customer segments. In October, Telstra announced the acquisition of Adam Internet, a regional low-cost retail broadband provider that comes with fiber assets and a data centre.

Restructuring needs are proving increasingly central to operators in the Asia-Pacific region, particularly those who have extended their service capabilities.

Strong investment opportunities remain in the wireless tower market

Think of infrastructure investment and dams, roads and runways probably come to mind. But some of the most promising infrastructure investments for the 21st century may involve a ubiquitous yet largely invisible structure: the cell phone tower.

Rhys Philip
Rhys Philip
Chief Commercial Officer
IHS Group

With six billion mobile users worldwide, according to United Nations figures, and many networks in the process of an upgrade, either from 2G to 3G, or 3G to LTE/4G, the cell phone tower represents a growing opportunity, according to Rhys Phillip, Chief Commercial Officer, IHS Group.

Previously the Head of Transaction Advisory Services for the telecommunications sector at EY, Rhys has acted as lead advisor on many tower transactions in Africa over the last few years.

Critical infrastructure considerations

“These are investments in a fundamental piece of a country’s infrastructure, vital for trade, inter-governmental relations and the social fabric of a nation. Contracts are long — 10–15+ years — and the cash flows are predictable,” says Phillip.

The stability of those assets and the general reliability of the counterparty — the larger mobile network operators (MNO) — combined with the material growth potential in many markets, make it possible to design a variety of investment opportunities to suit the needs of particular investors.

A range of industry and socio-economic benefits

According to Phillip, the benefits to operators of outsourcing towers are:

  • It provides a lump sum of cash at the beginning of the contract that can be returned to shareholders or invested in the customer proposition.
  • It reduces their operating and capital expenditure costs, replacing those considerations with a rental fee.
  • It frees managers to focus on opportunities elsewhere in the business.

Regulators and governments applaud the job creation and the ecological benefits associated with these transactions in that fewer towers are built in the country as a whole.

1Mergermarket, Telecom Asia, Factiva