Is the Telecom Industry Too Concentrated?

By Gary Kim February 11, 2013

Just 5 percent of global telcos control about 62 percent of industry revenue, according to analysts at Booz and Company. One might argue those figures show a high degree of industry concentration. But Booz says there’s significantly more to come.

In fact, “the telecom sector remains relatively fragmented,” Booz consultants say. In the healthcare and oil and gas sectors, companies in the top 5 percent generated 79 percent of total 2009 industry revenue.

International revenue provides another indication that further consolidation is possible. In the telecom business, international revenue accounted for only 25 percent of telecom industry revenue in 2008. That’s well below the 38 percent that all industries averaged, and only half that of some industries, Booz and Company consultants say.

Since 1989, the pharmaceutical industry saw consolidation of more than 30 large companies into just five major competitors.

Consolidation will mainly occur in three ways. Operators will pursue scale through cross-border mergers and acquisitions, entering new markets by making large transactions.

They’ll bolster their competitive advantage through transactions in markets where they already operate. Up to this point, in-country acquisitions have driven the bulk of activity. But in-country consolidation tends to raise regulator market concentration issues.

For that reason, some might predict more growth for trans-border deals.

And telecom operators will also consolidate ownership, gaining full control of operations where they currently have only a partial stake.

For the immediate future, cross-market “megadeals”— transactions in which major telecom operator groups acquire controlling stakes in other groups that have a presence in multiple markets, are likely to be the main trend.

Large international transactions have advantages. They let operators complement their footprint in regions where they already have a presence, or augment their business by entering promising new markets.

Large transactions involve just about as much overhead as small transactions, so large carriers might as well look to large acquisitions.

Large multi-market transactions also allow operators to enter into multiple markets with a single stroke, thus eliminating the complexity, cost and time lag involved in identifying and completing multiple transactions.

Large transactions offer a competitive advantage, enabling operators to preempt other providers from acquiring increasingly scarce and attractive targets.

The point is that the trend of mergers, which has been a feature of the business for some decades, is far from finished.




Edited by Braden Becker

Contributing Editor

SHARE THIS ARTICLE
Related Articles

Looking For The Next iPod/Echo

By: Rob Enderle    4/29/2016

The Amazon Echo, not the Apple Watch, became the last iPod-like product largely because of a far more accessible price point, a more compelling name, …

Read More

Apple Needs Reset, Not Elon Musk

By: Doug Mohney    4/29/2016

Apple's 13 percent sales decline and subsequent stock price drop this week has lead to the usual crazy talk about how to "fix" the company. Vivek Wadh…

Read More

Is the Apple Bubble Finally Bursting?

By: Andrew Bindelglass    4/28/2016

Over the past 13 years, Apple has been one of the most successful companies in the world of tech, posting sales growths in 51 straight quarters. That …

Read More

Shared-Space Providers (Airbnb) Poised to Beat Ride-Sharers (Uber)

By: Steve Anderson    4/28/2016

Travel may be starting to make a bit of a comeback, as a new report suggests that shared-space providers like Airbnb and WeWork are on the rise.

Read More

Facebook Wants More Sharing, Building New Camera App to Drive It

By: Steve Anderson    4/28/2016

One of the great downsides to having a lot of content in any one place is that, after a while, it starts looking downright pointless to add more.

Read More