Saturday, 21 October 2017

Build or buy: moving on from M&A

By Mary Lennighan, Total Telecom
Friday 15 September 17

Mega-mergers in the telecoms and cable markets make for good headlines, but many operators are focusing on rolling out their own infrastructure instead

Telecoms operators the world over are examining the economics of expansion through acquisition, but this week's news shows a leaning towards build, rather than buy. Verizon CEO Lowell McAdam made it clear that his company is no longer looking at cable mega-deals – it reportedly made a failed US$100 million-plus bid for Charter earlier this year – and will instead build out the infrastructure it needs to provide customers with the bandwidth they need. . "We've moved on," McAdam said in an interview at this year's Goldman Sachs Communacopia conference on Thursday…

Telecoms operators the world over are examining the economics of expansion through acquisition, but this week's news shows a leaning towards build, rather than buy.

Verizon CEO Lowell McAdam made it clear that his company is no longer looking at cable mega-deals – it reportedly made a failed US$100 million-plus bid for Charter earlier this year – and will instead build out the infrastructure it needs to provide customers with the bandwidth they need.
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"We've moved on," McAdam said in an interview at this year's Goldman Sachs Communacopia conference on Thursday.

"We did, I guess about a year ago, go through a process of taking a look at cable companies, but the fibre infrastructure isn't there," McAdam said.

He explained that while a big cable deal would bring with it a sizeable customer base, Verizon believes that its need for deep fibre in the network would make such a deal impractical.

"To pull out a lot of coax and put in the fibre...I'd rather just put in the fibre. So we've moved on from those discussions," he said.

However, Verizon is fresh from announcing the $225 million acquisition of Chicago-based fibre network operator WideOpenWest, and it appears McAdam has not ruled out other similar deals.

"If we see something in the M&A area that makes sense to buy versus build, we'll do it," McAdam said. "But we've also got a very healthy dose of building," he added, noted that Verizon is buying 12.5 million miles of fibre per year for the next three years. "We like our position at this point," he said.

Verizon's decision to pull back from the cable space leaves the way open for the likes of Altice, which is reportedly getting its bankers in a row for a bid of its own for Charter, having established a U.S. division last year with the multi-billion-dollar acquisitions of Suddenlink and Cablevision.

Meanwhile, elsewhere in the world, telcos are also looking at building.

Vodafone this week unveiled a €2 billion investment plan to roll out high-speed broadband connections in Germany over the next four years. For the most part, the operator is working with partners to roll out fibre to business parks and consumers in rural areas. However, it has also earmarked around €200 million of the total to accelerate the rollout of DOCSIS 3.1 across its cable footprint.

It is worth noting that Vodafone built up its position in Germany with a cable buy though, albeit on a smaller scale than any potential U.S. cable takeover. The telco completed the €7.7 billion acquisition of Kabel Deutschland in 2013.

In Italy it's all about build, in part because there is no cable market to speak of. Incumbent operator TIM has brokered a deal with local utility companies that will enable it use their ducts and other infrastructure in the rollout of its fibre network.

But parent company Vivendi's plan to create a converged telecom and media business in southern Europe was dealt a blow this week when Italian market regulator Consob ruled that it exercises de facto control over TIM.

That ruling opens the way for the government to step in, should it choose to do so, to protect assets considered to be of national strategic importance in Italy. One of those assets is international carrier Telecom Italia Sparkle, which could be spun off into a separate entity under Italian control or even sold off, Reuters claimed this week.

Speaking of international network operators, CenturyLink has admitted that it will miss its deadline for closing the US$34 billion acquisition of Level 3, but only by a matter off weeks. The U.S. operator said it will complete the transaction in mid-to-late October, having previously aimed for the end of Q3.

There are several top-level speakers from both TI Sparkle and Level 3 on the agenda at this year's Carriers World event, which takes place in London the week after next. In addition, BICS CEO Daniel Kurgan; Eduardo Guardincerri, CMO of Telefónica Business Solutions; Telstra Global's EMEA MD Tom Homer; and Timothy Passingham, VP wholesale at Colt will take to the stage in what promises to be a fascinating opening session, so if you haven't already booked your delegate pass, now is the time! Contact Martha Phillips on +44 20 7092 1189 or martha.phillips@terrapinn.com.

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