-By ArdorComm News Network
July 25, 2024
The communications service provider (CSP) sector has seen substantial consolidation over the past few years, with a total of 514 mergers and acquisitions (M&A) involving mobile and wireline companies globally between 2019 and 2023, according to Omdia’s latest research.
M&A Deal Volume from 2019-2023
In this period, wireline M&A deals outnumbered mobile deals significantly, with 392 wireline and 122 mobile transactions. A notable mobile M&A deal includes the proposed merger between Vodafone and Three in the UK, which, pending approval by the Competition and Markets Authority, would result in the UK’s second-largest mobile operator by subscriptions.
Recent Trends and Market Dynamics
The number of M&A deals across all CSP sectors totaled 214 in 2023, a decrease from a peak of 316 in 2021. This decline can be attributed to high interest rates and a cyclical downturn in the technology industry. Despite these challenges, the telecom market’s dynamics indicate a persistent drive for further M&A activities among CSPs.
Matthew Reed, Chief Analyst for Service Providers & Markets at Omdia, noted, “With revenues in the telecom sector growing at a low rate while markets are competitive and increasingly mature, many more CSPs will seek consolidation to cut costs by eliminating duplication and invest in network technologies such as fiber and 5G to propel growth in their connectivity business.”
Strategic Benefits of M&A
Merging provides operators with economies of scale, increased competitiveness against major players, opportunities for cross-selling, and greater procurement power. Beyond consolidation, telecom operators are using M&A to implement delayering and diversification strategies.
Delayering and Diversification Strategies
Delayering involves CSPs selling infrastructure assets, such as telecom towers, to raise funds for debt reduction or investment in other business areas. For example, in July, Telecom Italia (TIM) sold its fixed-line business in Italy to investment group KKR, enabling TIM to focus on growth through new beyond-connectivity consumer services and enterprise ICT services.
CSPs are also acquiring companies in high-growth technology sectors to diversify their offerings. Both Orange and Telefonica have expanded significantly into the cybersecurity sector through strategic acquisitions.
Matthew Reed added, “For telecom operators that want to become technology services providers, one way to make that transition is to buy companies that already have the capabilities and customer base in the target sectors.”