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

Compliance: Hope Is Not a Plan

By: Special Guest    8/1/2018

Internal misalignment between compliance and business teams can lead to major problems for organizations seeking to implement new digital communicatio…

Read More

Modern Moms Shaping Influence

By: Maurice Nagle    7/19/2018

Everyone knows Mom knows best. The internet is enabling a new era in sharing, and sparking a more enlightened, communal shopping experience. Mommy blo…

Read More

Why People Don't Update Their Computers

By: Special Guest    7/13/2018

When the WannaCry ransomware attacked companies all over the world in 2017, experts soon realized it was meant to be stopped by regular updating. Even…

Read More

More Intelligence About The New Intelligence

By: Rich Tehrani    7/9/2018

TMC recently announced the launch of three new artificial intelligence events under the banner of The New Intelligence. I recently spoke with TMC's Ex…

Read More

Technology, Innovation, and Compliance: How Businesses Approach the Digital Age

By: Special Guest    6/29/2018

Organizations must align internally to achieve effective innovation. Companies should consider creating cross-functional teams or, at a minimum, incre…

Read More