'Growth Through Acquisition' Can Lead to Irrational Exuberance

By Gary Kim November 01, 2013

“Irrational exuberance” has, from time to time, been a major problem in the global telecommunications business. Contestants sometimes have paid too much to acquire assets. That was true of some Western European operators who, in retrospect, paid too much for 3G spectrum.

Irrational expectations were a problem for lots of telecom providers between 1999 and 2001. More recently, mobile operators in India have faced the problem of revenues insufficient to allow recovery of investments.

India's Bharti Airtel, for example, bought Zain's African operations in 2010 for $10.7 billion, considered a high price at the time, to gain access to the high growth potential in Africa. But competition has led to low retail prices.

Bharti's average revenue per user grew 8 percent from 2012 levels to 192 rupees in India and fell 10 percent in Africa.

Some observers believe that will be an issue for AT&T as well, if it tries and succeeds at acquiring a major stake in the European market. 


Image via Shutterstock

The investment thesis has some clear attractions. Western European mobile service providers are valued less richly than U.S. mobile operations, so AT&T might look to buy assets that are undervalued.

AT&T also reckons that Long Term Evolution services, which have propelled growth in the U.S. market, are lagging in Europe, allowing AT&T an opportunity to invest early and hopefully reap the revenue rewards.

Skeptics say the LTE opportunity will not be as large as in the United States or North America because Europeans do not value data access as much as North American consumers. Also, most European markets are fiercely competitive, putting pressure on retail prices, as Bharti encountered in Africa.

On the other hand, some will argue, AT&T has little choice but to consider “growth by acquisition.” The major question is where to make such acquisitions.

In part, that imperative is driven by the relative situation AT&T faces in its core U.S. market, where Verizon Wireless appears to be putting distance between itself and other leading U.S. service providers, while all three other competitors are plowing new capital and marketing effort into the U.S. market.

Under those circumstances, AT&T might rationally conclude its capital is better spent elsewhere, where opportunities for growth are brighter, as tough as growth anywhere might be.

The issue is whether or not any of those mobile service providers are going to find that the returns lag the investments, as sometimes happens in the telecom business.




Edited by Alisen Downey

Contributing Editor

SHARE THIS ARTICLE
Related Articles

Verizon Needs Tough Love on Copper Policies

By: Doug Mohney    1/29/2015

New regulation on broadband and telecommunications providers is at top of mind here at ITEXPO. Jeff Pulver, founder and chief executive of pulver.com …

Read More

OTT Video Set to Top $6 Billion in 2019

By: Tara Seals    1/29/2015

When it comes to over-the-top (OTT) video, it has grown not only in developed regions but also in emerging markets, both as an alternative and complem…

Read More

Digium CEO: Businesses at Every Level Can Get Started with UCaaS

By: Allison Boccamazzo    1/29/2015

Digium CEO Danny Windham made one thing clear during his keynote presentation at ITEXPO 2015: Businesses of all kinds, at every developmental level, c…

Read More

When Gaming Isn't a Game: 3 Best Practices to Protect Your Hosting Service Against DDoS Attacks

By: Joe Eskew    1/28/2015

The unprecedented number of security breaches, hacks and DDoS attacks on gaming communities, software manufacturers and even Hollywood studios grew to…

Read More

No Hackers Took Down Facebook; Hour's Outage Mostly Internal

By: Steve Anderson    1/28/2015

Facebook released a statement not long after the outage had hit, revealing that the cause of the shutdown was not "...the result of a third-party atta…

Read More