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

Verizon Shows Support for Nepal Earthquake Victims

By: Dominick Sorrentino    4/27/2015

As international aid agencies and NGOs gear up to help the victims of the 7.8-magnitude earthquake that struck Nepal on Saturday, claiming more than 3…

Read More

Survey Shows Business Executives and IT Leaders Disagree on Future of Enterprise Tech Investing

By: Peter Bernstein    4/27/2015

Perception can become reality, and this is not necessarily good news. This is particularly true during times of major change, which we are currently e…

Read More

Comcast-TWC Demise Points to Online Video's Ascendency

By: Tara Seals    4/27/2015

Comcast may have called off its $45 billion megamerger with Time Warner Cable, but the legacy of what that means for the FCC's policy for online video…

Read More

How Solar Investments Will Change in 2016

By: Anna Johansson    4/27/2015

The solar industry has been of particular interest to consumers, businesses, and technology developers over the course of the past decade or so. Solar…

Read More

Nevada: Silver State to Tech Center

By: Doug Mohney    4/24/2015

Silver was the primary mineral mined in Nevada when it was admitted to the union in 1864, earning it the slogan of "The Silver State." Times changed, …

Read More