As MasMovil becomes latest acquisition target, are more takeovers on the horizon?

KKR, Cinven and Providence have combined forces to buy Spanish telco MasMovil, but with depressed share prices and regulatory opinions shifting, it could be the first of many corporate transactions.

The merger and acquisition landscape has been somewhat quiet over the last few months, since the COVID-19 pandemic set in across the world, but we struggle to believe there are not cash rich investment funds considering weighty purchases. The most successful investment funds are only such because they can sniff an opportunity, and this is exactly what the MasMovil acquisition should be viewed as; corporate opportunism.

There are still approvals needed from Banca de Espana, the Spanish Telecoms ministry and Industry & Commerce ministry (foreign investment approval), as well as competition authorities in the EU, China, Turkey, Serbia and Israel. However, we suspect the process will run smoothly, especially considering MasMovil CEO Meinrad Spenger has already said he would support the transaction.

First reported by Reuters, the trio of bankers have now made an official public tender offer for $3.3 billion, a 22% premium on the opening share price this morning (June 1). Share price has surged 20%, as one would expect, though it has only just crept above the pre-lockdown levels.

This is what is very interesting about the telco market currently; share price for all major and minor telcos is severely depressed. For those who have money available, and the desire to push into the telecoms space, it is a very attractive opportunity currently.

Share price of selected European telcos during COVID-19 lockdown period
Telco Share Price, June 1 Share Price, Feb 3 Change
BT 120.51 163.34 -26%
Telecom Italia 0.48 0.34 -29%
Telefonica 6.11 4.48 -26%
Telenor 17.75 15.02 -15%
Orange 12.80 10.98 -14%
Vodafone 150.82 134.86 -11%

Share prices accurate at the time of writing – 10.30am, June 1

Some of the companies mentioned above would be too big to consider to be an acquisition target, Orange or Telefonica for example, though others could certainly fall into the right bracket. BT has a market capitalisation of £11.9 billion and is underperforming against UK rivals considerably, while the likes of KPN in the Netherlands could be another interesting target. Sitting third in the mobile market share rankings in the Netherlands, a cash injection and refreshed strategy could be a worthwhile gamble with the telco’s market capitalisation currently €9.42 billion.

Of course what is also worth noting is that the opportunity for acquiring business is not just limited to the bankers. Thanks to a ruling from the European Court of Justice, telcos might have renewed enthusiasm for market consolidation.

Last week, the General Court of the European Court of Justice annulled a decision made in 2016 to block a merger between O2 and Three in the UK on the grounds of competition. In annulling this decision, it challenges the long-standing belief that mergers which would take a market from four operators to three would be vetoed automatically.

This decision is very important for those who have been championing market consolidation. Some argue fewer telcos would results in more concentrated network investment, as well as scaled economics thanks to larger customer bases. The decision from the European courts opens the door for potential market consolidation.

There are of course markets where consolidation is not realistic, the Netherlands or Belgium for example where there are only three mobile network operators (MNOs) today, but there are others where this could be an interesting development. Spain is certainly one of them.

The Spanish market is one where there is plenty of competition. There are currently four major mobile operators, albeit MasMovil is an MVNO, while Euskaltel announced plans to challenge the market with a Virgin Media branded proposition. KKR, Cinven and Providence want to take control of MasMovil, but might Orange be tempted to muscle in on the action?

Telco subscriptions in Spain (2018-2021)
Telco 2018 2019 2020 2021
Orange 19,450,963 19,016,941 19,783,330 19,890,931
Telefonica 18,384,400 18,916,801 19,579,529 20,040,114
Vodafone 15,500,832 15,427,639 15,262,546 15,406,460
MasMovil 6,760,000 7,435,000 7,513,777 7,952,289

Source: Omdia World Information Series

MasMovil could look attractive to Orange for several reasons. Firstly, this is a telco which is heading in the right direction, subscriptions are growing year-on-year. Secondly, MasMovil has bought into the convergence business model which is being championed by the Orange Group. And finally, MasMovil is a MVNO customer of Orange’s Spanish wholesale business, making integration a bit simpler.

With the European courts turning a new page on market consolidation, possibly indicating authorities might be more accommodating of such transactions, this could be an idea which is being discussed in the Orange offices. It would make sense for Orange’s ambitions in the country, while MasMovil is open to some sort of transaction.

Some might also suggest Telefonica would be interested, but with the management team desperate to reduce the €44 billion debt burden and its credit ratings not exactly sparkling, this is unlikely. Vodafone might have considered such a move at another time, but it has larger problems to tackle without adding the complications of an acquisition, most notably in India and Italy.

Speculation aside, KKR, Cinven and Providence will attempt to buy the Spanish challenger telco. With a depressed share price and appreciation for the importance of the telecoms industry at its highest levels, we would not be surprised if this is only the first of several transactions from investment funds, though telco consolidation is also another story worth keeping a close eye on.

What we learned about Dish during the earnings call

With Dish executives leading the company’s quarterly earnings call, details of the plan to crack into the US mobile market were revealed.

The next few years are critical for the US telecoms industry but also the credibility of the FCC and the Department of Justice. Both of these authorities dismissed opposition to the T-Mobile US and Sprint merger, ignoring suggestions it would damage competition. Dish was the reason competition could be maintained, irreversibly changing the US telecoms industry, so it better succeed.

Fortunately, the is being fairly transparent about developments, or certainly more so than most telecoms executives are. But what did we learn from CEO Erik Carlson and Chairman Charlie Ergen last week?

Firstly, $10 billion should be enough to build a nationwide network.

This is a figure which has been banded around quite a lot in recent months without any in-depth explanation, but Ergen believes $10 billion should be enough to meet FCC regulatory requirements and go beyond to create a nationwide network which can compete. There might be a few unforeseen expenditures, spectrum auctions for example, but the team is standing by this estimation.

While the Boost business has not been officially closed yet, the team should have launched in one market by the end of the year, with its own independent core but leaning on the T-Mobile access network. This MVNO agreement will be running for seven years, but the team have already begun talks with tower companies to push forward to create its own network.

What is worth noting is that this work is running independent of the assets which can be purchased from the new T-Mobile company. EVP of Corporate Development Tom Cullen highlighted that deployment planning has begun but once the Boost deal closes, Dish will also have first refusal to acquire cell sites from T-Mobile which are deemed surplus to requirements thanks to the network rationalisation process between T-Mobile US and Sprint.

Although this is detail which some might not have expected, there are still quite a few questions remaining. That said, there is absolute clarity on one area in particular.

“We also took a $356 million impairment charge during the quarter, related primarily to our narrowband IoT build and our satellites D1 and T1,” said CFO Paul Orben. “Now that the T-Mobile/Sprint merger has closed and there is more clarity surrounding our revised build-out requirements. We no longer intend to finish our narrowband IoT build.”

NB-IOT has been struggling to live up to the expectation in numerous markets and this will not help matters. Dish is officially turning its back on NB-IOT, choosing to take an impairment charge on FCC commitments and turn attentions to a 5G network instead of completing the project.

While this might not be the most encouraging of signs, the embracement of OpenRAN and Mavenir as the company’s first official supplier is.

“Marc [Marc Rouanne – Chief Network Officer] continues to work on the architecture and further vendor selection,” said Ergen. “So I would anticipate more of those announcements in the third quarter. And then we’ll share our deployment plans once those are formalized likely on the next call.”

The dynamic of network suppliers is an interesting one for Dish. Ergen highlighted there was a desire to use Huawei equipment, which he described as “best in class”, though the team is being asked to find innovation in new ways. We also found out there is an active dialogue between Dish and Japan’s Rakuten to learn about OpenRAN deployments in the wild.

This is an area many will be keeping a close eye on, not only for validation of a technology which is still not the real deal, but also vendor appointments. The scale of this network, and the aggressive deployment schedule, could force OpenRAN start-ups to grow very quickly. Dish could be a major catalyst for growth for the lucky few who are selected.

It is of course early days, but there are some very interesting developments to keep an eye on here. The team might have opened the door slightly, but there is still much left to discover.

Will the team be able to deploy a network for $10 billion? How will it build its wholesale business unit? When will network slicing begun to be factored in? Which OpenRAN suppliers will be added to the roster over the next few months? Which markets will the postpaid products be launched in first?

With the next earnings call scheduled for July 30, the next three months could offer some very interesting announcements.

Australia takes on Silicon Valley to redistribute the wealth from news stories

The Australian Government has promised by July a mandatory code to force Silicon Valley to pay Australian media organisations for content used on their platforms.

Led by the Australian Competition and Consumer Commission, the mandatory code, which will be legislated following its introduction, will ensure money flows from the internet giants to the content creators. Companies such as Facebook and Google have greatly profited by being content aggregators, but without sending profits back to the content creators, the traditional media industry is not sustainable for the long-term.

As part of the new code, the internet companies would have to pay the original content providers for embedding content on the platforms. This could be approached in two different ways; a flat rate up-front for the work done on the article or a commission on the value which is realised by the social media giants for embedding the content on their platform.

“The ACCC, led by Rod Sims, produced an outstanding report which made a number of recommendations, recommendations that the Government has accepted,” said Frydenberg, during a press conference this morning.

“One of those key areas of focus for the ACCC was to develop a voluntary code between the digital media businesses and the digital platforms to govern their relationships. And last year, the Government announced that it hoped a voluntary code would be reached by November of this year. Those negotiations were held, and no meaningful progress was made on the most significant component of which the code was to deal with, namely payment for content.

“In the words of the ACCC, they did not believe that progress would be made, and a deal would be done with a voluntary code.”

Frydenberg made it very clear during the press conference that the Government did not want to step in to place regulation on the media industry, but as it nor the ACCC could see “light at the end of the tunnel” through these negotiations, it was forced to. The industry was given the opportunity to self-regulate, but it appears it was not changing its ways fast enough.

Meeting were being held and discussions were taking place, so it isn’t like the social media giants weren’t turning up, but advice from the ACC said it was unlikely there was going to be an end-result in the foreseeable future, certainly not before the November deadline.

While the internet has disrupted many segments of the world, few have been hit as hard as the media industry. Both in terms of the way in which these companies make money, and how the general public consume news, the landscape is incredibly different from a decade ago.

According to research from UK regulator Ofcom, 49% of adults now get their daily news from social media platforms. This is fine of course, but the way in which these platforms are designed means consumers will only get content which they are likely to find appealing. It creates an echo-chamber, which is more likely to create partisan political environments and stubborn individuals who are less accommodating of alternative thinking.

Social media certainly has a place in educating the public, but traditional media which presents news to consumers irrelevant to their ‘likes’, previous behaviour, advertising preferences and friends also plays a very important role. It is just as important for people to see news which they are not comfortable with.

Ultimately, the driver for this review and code is the need and desire to create a sustainable media industry. This is a critical component of a well-functioning and adequately informed democratic society, though as it stands, competition for advertising dollars is not in a healthy position.

With both the internet giants and traditional media competing for the same digital advertising dollars, the issue is the burden of content creation. As a content aggregator, the internet companies are not encumbered with the mission of creating or paying for content; quality and reliable journalism is not free.

But, a dynamic where two segments are competing for the same advertising dollars, but one acquires content from another for no cost is not a healthy dynamic. Traditional media companies have already had subscription revenues ripped off the spreadsheets, and unless they are adequately rewarded for their efforts, it is a struggle to see many of these titles surviving for the long-term. This is a significant problem for a democratic society which relies on the dissemination of information, analysis by experts and critique of claims.

This is of course a very valid mission for the Australian Government to undertake, as one this Silicon Valley has shown over the years is that its residents do not care about what benefits society when it detracts from profits. These are money machines, and if an initiative does not make more money, it is not important. This is perhaps the only reason the internet companies did not embrace the voluntary code when the option was available.

But what is worth noting is the ACCC will have to take into account failures in Europe.

Various European nations attempted to level the playing field, though these efforts would be considered a failure so far. The Australian authorities believe this is because it was attempted by reforming copyright law, which presented a raft of ripples throughout the industry. One consequence in France was a refusal from the internet giants to display domestic media unless it was for free, though French authorities are investigating whether this is a misuse of market power currently.

The Australian authorities believe the challenges can be avoided by taking a competition approach, rather than copyright. Few details of the thinking behind these claims were offered, though only time will tell. The fact it will also be legislated will add weight to the efforts.

What can be guaranteed however is a fight from the likes of Google and Facebook.

The lobbyists for the internet giants are some of the most active in the political capitals, while the lawyers are some of the most practised in the courtrooms. Silicon Valley generally does not react well to challenges to profits, irrelevant as to whether it is for the greater benefit of society.

The fight will of course delay the introduction of such as code, but this is a critically important move from the Australian authorities to ensure a fair, reasoned, unbiased media industry has a future in democratic societies.

France directs €1.1 billion cartel fine towards Apple

The iGiant has already said it strongly disagrees with the opinion of the French Competition Authority, though a decade-long investigation has found Apple, Tech Data and Ingram Micro guilty of price fixing.

After an investigation was launched in 2012, Apple was found guilty of fixing prices for its retailers in France as well as limiting competition. Apple is now in line to receive a record fine totalling €1,101,969,952, while Tech Data and Ingram Micro will have to find €76,107,989 and €62,972,668 respectively.

Interestingly enough, what this ruling suggests is that Apple was unfairly using contractual clauses to strangle supply and control pricing on the high street. Pricing is a very important aspect of the Apple business, allowing the company to maintain profit margin, but also retain the premium brand perception is has cultivated over so many years.

The Apple brand is the envy of many companies around the world, it allows Apple to charge a premium, but also command customer loyalty. Limiting supply could help create this sense of exclusivity to justify the pricing premium, though the French Competition Authority clearly thinks this is contrary to the law.

“Given the strong impact of these practices on competition in the distribution of Apple products via Apple premium resellers, the Authority imposes the highest penalty ever pronounced in a case (€1.24 billion),” said Isabelle de Silva, President of the French Competition Authority.

“It is also the heaviest sanction pronounced against an economic player, in this case Apple (€1.1 billion), whose extraordinary dimension has been duly taken into account. Finally, the Authority considered that, in the present case, Apple had committed an abuse of economic dependence on its premium retailers, a practice which the Authority considers to be particularly serious.”

Firstly, the French Competition Authority has said the trio sterilized the wholesale market for Apple products through an agreement where the distributors would not compete with each other. The investigation suggests Apple managed the process of product and customer allocations between its two wholesalers between 2005 and March 2013, even going as far as dictating the exact quantities of the different products to be delivered to each reseller. Through such a practice, supply could be strangled and therefore high prices maintained.

Secondly, so-called Premium distributors were not allowed to run promotions or offers which made the products cheaper that what Apple would sell. Thanks to some very strict contractual clauses, very little wiggle room remained to offer any promotions to create a more attractive competitive environment on the high street. In short, any promotion, whether related to price or not, was controlled by Apple not the resellers and retailers.

Finally, Apple has abused the economic dependence of these Premium distributors by subjecting them to unfair and unfavourable commercial conditions. The abuse of economic dependence, as it is known in France, is uncommon, but the result of a complex tangle of multiple contractual clauses and practices. In short, this effectively offered Apple unreasonable control over the businesses of its distributors and resellers.

Although the French Competition Authority has conceded Apple is free to manage its distributors and value chain in whichever way it feels necessary, it has reminded the tech giant it has to pay suitable homage to the law. For example, it is illegal to pre-assign customers to distributors, agree sales prices or disadvantage distributors with the power of its own sales channels. In short, the French Competition Authority found plenty of opportunity to poke Apple with a sharp stick.

Indosat Ooredoo the latest to join the OpenRAN race

With OpenRAN enthusiasm stampeding through the industry, Indosat Ooredoo is the latest telco to join the race.

Indosat Ooredoo will become the first telco in Asia to push forward with OpenRAN trials as the team searches for cost effectiveness and accelerated network deployment in Indonesia. The field trials will be up-and-running by April, focusing on the least developed regions of Indonesia.

As part of the initiative, Indosat Ooredoo will also establish the first TIP Community Lab in South-east Asia during the second quarter. This will be the twelfth TIP Community Lab to be opened worldwide in what will act as a telco-neutral platform for the telco community to trial solutions, to drive through interoperability and test market readiness of products.

“Only through collaboration can we accelerate the pace of innovation in telecom networks; we are excited to see the Indonesian telecoms community rallying together for this purpose,” said Attilio Zanni, Executive Director of TIP. “This is the beginning of a transformation journey in Indonesia – as the telecoms community and Indonesian citizens reap the benefits of a locally tested and deployed TIP-led solution, and a stronger supply ecosystem.”

“Indosat Ooredoo has a similar vision with the Government to create an effective and equitable digital ecosystem throughout Indonesia and encourage the emergence of local players,” said Ahmad Al-Neama, CEO of Indosat Ooredoo. “We hope this collaboration will accelerate the creation of a healthier industry and improve the digital economy and better life for the people of Indonesia.”

Specifics for the project are still thin on the ground for the moment, though perhaps this is intentional. Indosat Ooredoo has spoken about encouraging a local ecosystem, and perhaps this will be favoured over the internationally recognised OpenRAN players.

While OpenRAN is collecting interest from telcos all over the world, Indonesia is one of the regions for which the technology can offer the biggest benefits. As a nation where the connectivity industry still has a lot of headroom for growth, ARPU and a significant digital divide has faltered progress.

The promise of OpenRAN, disaggregated software and hardware, could lead to alternative vendors and commoditised equipment to drive down deployment costs. The theory is a revolution, breaking the shackles of the traditional vendor community and inspiring competition for lower costs.

Aside from these trials, Etisalat is trialling OpenRAN across the Middle East and North Africa, while MTN is another which has promised to implement OpenRAN over 5,000 sites across Africa. Turkcell is driving its own implementation in Turkey and IpT Peru is a new telco running trials in Peru.

Although the vast majority of these trials are taking place in the developing markets, the promise of OpenRAN can also help address rural connectivity issues in more developed markets. Vodafone and O2 in the UK are two telcos in the UK making use of OpenRAN to fill in the pockets of poor connectivity in the more sparsely populated regions of the country. Rakuten in Japan is another telco driving forward, though this is one telco not inhibited by the crutch of legacy networks.

The issue which does remain is whether the performance of these decoupled products can match that of the status quo. OpenRAN might be exciting but the likes of Ericsson, Nokia and Huawei have been honing their own solutions for close to a decade. It might be some time before this embryonic technology can match up, but while telcos are facing up to the enormous bill to deploy 5G and full-fibre networks, any proposals to save a bit of cash here and there will certainly be appreciated.

Canadian watchdog ponders an MVNO invasion

The Canadian Radio and Telecommunication Commission (CTRC) has completed the first stage of its competition review as the watchdog ponders the competition conundrum in the country.

Between February 18 and 28, the CTRC heard evidence from numerous industry executives as the watchdog aims to improve the connectivity landscape for Canadian consumers. Preserving scale but inspiring competition is an interesting equation to balance, and in Canada, it could result in the encouraged creation of wholesale agreements. The land of Mounties and maple syrup could see an invasion of MVNOs in the near future.

“First, we will examine the state of competition in the mobile wireless market and whether further action is needed to improve choice and affordability,” said Ian Scott, CTRC CEO, during the opening remarks in February.

“Second, we will consider whether mobile virtual network operators, also known as MVNOs, should have mandated access to some or all wireless service providers’ networks and, if yes, subject to what considerations. On this matter, the CRTC’s preliminary view is that the national wireless service providers (Bell Mobility, Rogers and Telus) should be required to provide MVNOs with wholesale access to their networks, subject to certain constraints.”

The issue which remains at the heart of this situation is whether there is a fair deal for the Canadian consumer. As it stands, most Canadians are happy with the service provided, though prices are a worry. Tariffs have been increasing in recent years and it does look like a trend which will continue.

Canadian authorities have generally given the industry the benefit of the doubt, largely allowing an environment of self-regulation, though now it appears it needs to step in. Canada might have excellent network performance, but it is not presenting the consumer with a fair deal.

Country Average Price per GB (US $) Average download speed (Mbps)
Canada $12.02 28.76
USA $12.37 32.89
UK $6.66 22.37
New Zealand $9.79 32.72
Australia $2.47 16.36

Stats curtesy of Cable.co.uk

Download speeds in Canada would be deemed perfectly acceptable, even fast to some nations around the world, but the digital economy does have a very high barrier to entry.

What is worth noting is that this is not the first time the Canadian watchdog has had to step in, seemingly admitting the telco industry is not capable or mature enough to look after its own interests in a fair and reasonable manner. The CTRC has to intervene in 2015 to set up a roaming framework between the telcos, change regulations to lower the cost of SIM-only deals and make wireless voice and internet services part of the universal service objective to ensure continued network investment.

What is of course worth noting is that the status quo is firmly set against any change in the market. Telus, Bell and Roger have a comfortable position, with each telco collecting healthy profits; why would these giants want the prospect of increased competition to lower tariffs and potentially erode the profit margin?

The outcome of this review will hopefully be set rates to force the established telcos to offer wholesale services to MVNO entrants. This is a market where competition is stagnant, while the high barrier to entry makes it highly unlikely another MNO will appear in the foreseeable future. MVNOs are probably needed to disrupt the market and provide suitable competition, but it remains to be seen how effective the lobby efforts of the traditional telco interest is.

Vodafone Idea starts to lobby for minimum pricing

Vodafone Idea has written a letter to the Indian Government which suggests it is pushing for minimum pricing to ensure a healthy and sustainable telco industry.

As it stands, the competition conundrum in India heading towards a perilous conclusion. With Vodafone threatening to abandon its pursuit of digital riches in the country, a defacto market duopoly is increasingly becoming a realistic outcome. This would be far from a perfect position.

According to The Economic Times, Vodafone Idea has demanded the introduction of a minimum cost for data tariffs in the country. The proposed plan would see prices set at a minimum of 35 Indian Rupees (c.$0.48) which would be more than double the average cost per GB in the country as it stands. Vodafone Idea is also asking for free phone calls to be banned.

While Indian consumers might be disturbed by the prospect of a price hike, especially considering there was already one three months ago, it is perhaps a necessary step to ensure competition is preserved in the country.

The introduction of Reliance Jio in 2016 was seemingly an effort to stimulate progress in a lethargic telco industry, hence the Government assistance which was offered to the firm. But it arguably went too far, taking prices far below want would be deemed sustainable for the competition which have to deal with legacy networks, products and business processes.

Looking at the concept of competition, it is generally accepted that 3-4 telcos are required to ensure the consumer is protected through suitable competition. This unofficial rule has resulted in many acquisitions being denied in Europe, or at least there being major concessions being offered to create a replacement. The same scenario is currently being played out in the US with T-Mobile and Sprint merging, but with Dish emerging as a replace fourth player.

However, India as a country is a different case. With a population of 1.3 billion, many of whom will live in areas where the digital divide is incomprehensible to those in more developed digital markets, perhaps Indian authorities should be doing more to encourage more investment and competition. Three MNOs does not look to be a sustainable position right now, and the prospect of dropping to two would worry many.

Vodafone has threatened to pull out of its joint venture with Idea Cellular due to the $7 billion spectrum licence bill it is facing, though it does seem to be searching for ways to make the situation work. The proposal to introduce a minimum price for data could add more security for the firm which is desperately attempting to avoid bankrupting itself in search of the rainbow’s end.

Indian government strives to save its dwindling telco industry

Government officials have reportedly been having meetings to figure out how the prospects for Vodafone Idea can be improved and three-way competition can be preserved.

Rumours have been circling the Indian telco space over recent weeks as it appears the industry is sleep-walking towards the death of Vodafone Idea and the creation of a defacto duopoly. One potential outcome in the immediate future would be invoking banking guarantees, a precursor to termination of telecom licences, according to the Economic Times, though this would be a worrying move.

With finance and telecoms ministers meeting in private, the objective could be to preserve a level of competition which is deemed adequate. Three private telcos should be considered the absolute minimum, though this is arguably too few for a nation the size of India. If the status quo is to continue concessions will have to be made.

What is actually being discussed behind closed doors remains to be seen, though reports are suggesting the Indian Government is seeking remedies to the precarious situation. This may well mean deferred or staggered repayments for the €7 billion spectrum bill being faced by both Vodafone Idea and Bharti Airtel.

The seriousness of the situation in India should not be taken lightly, though whether the Indian Government has the foresight to appreciate the damage which could be done in pursuing immediate repayment remains to be seen.

Vodafone Group CEO Nick Reid has repeatedly stated he would not be prepared to invest more capital in the market, or at least the vast sums which are being discussed today. It does appear Vodafone is prepared to wrap-up the joint venture between itself and Idea Cellular. Reid is perhaps looking at the big picture.

Vodafone is under pressure in several markets across the world. In the UK, it is spending significantly to bolster its current market share, while both Spain and Italy are presenting challenging environments thanks to heightened competition. India offers great potential, but $7 billion is a significant investment to remain in the hunt. At some point, executives will have to question when the end is nigh.

The ‘Chase Theory’ is usually associated with compulsive gambling, but it is also applicable here. As one of the simplest forms of gambling, the punter doubles down to recoup losses in pursuit of a theoretical gain. India is a market which offers great rewards due to a massive population and rapid digitisation, but it is proving to be a very costly pursuit. The last thing Reid will want to do is bankrupt his business chasing the hypothetical pot of gold at the end of the rainbow.

If the Indian Government does not introduce some flexibility into its mindset in dealing with the telcos, the market will soon devolve into a defacto duopoly. Admittedly, there are two state-owned telcos still in the fray, but these are providing next to no genuine competition. For a sustainable and healthy telecoms industry in India, the existence of Vodafone Idea should be considered priority number one.

The trickiest aspect of this discussion will be how to maintain credibility as an authority; the Indian Government needs to help Vodafone Idea, but it cannot be held to ransom by divas in the telecoms space.

Vodafone and TPG win appeal for $15bn mega merger

The Australian Federal Court has overturned a decision by the Australian Competition and Consumer Commission (ACCC), paving the way for Vodafone and TPG to create a converged telco giant.

The ACCC had originally opposed to decision on the grounds of weakened competition, believing TPG would create a mobile offering while Vodafone would expand its broadband offering independently, however the courts disagreed. Both the telcos argued the financials did not add up to pursue convergence strategies independently, with the courts now greenlighting an AUS$15 billion merger after an 18-month wait.

Vodafone and TPG have said the merger is set to be complete by mid-2020, subject to approvals from other regulators and other shareholders, as well as the likely appeal from the ACCC.

“The ACCC’s concern was that with this merger, mobile data prices will be higher than they would be otherwise,” said ACCC Chair Rod Sims. “These concerns were reinforced by statements from the industry welcoming the merger and the consequent ‘rational’ pricing.

“We stand by our decision to oppose this merger. If the ACCC won 100% of the cases we took it would be a sign we weren’t doing our job properly; by only picking ‘safe’ cases and not standing up for what we believe in. The future without a merger is uncertain. But we know that competition is lost when main incumbents acquire innovative new competitors.”

Theoretically, the ACCC has a point, but it has been ignoring some very significant factors. Firstly, deploying a mobile network in a country so vast as Australia is incredibly expensive. Secondly, in banning Huawei as a supplier of RAN equipment, TPG’s business case was undermined. And finally, introducing additional competition and encouraging a race to the bottom does not necessarily create a healthy and sustainable telco industry.

TPG has said continuously over the last few months that without being able to work with Huawei the commercials of deploying a mobile network do not add up. On the increased competition, India and Italy are two markets which have demonstrated more competition and decreased tariffs can eventually lead to a very difficult position.

Mobile Broadband
Telco Market share Telco Market share
Optus 31.4% Optus 13.6%
Telstra 50.4% Telstra 55%
Vodafone 18.5% TPG 16.8%
Other 14.4%

While it is not guaranteed, there is hope this merger could end up being a positive for the Australian telecommunication market. A merged entity could provide more competition for the Telstra and Optus pair who are leading the market share rankings. Both of these telcos are able to entice customer with bundled service offerings, something which is becoming increasingly popular in the eyes of the consumer. The merged Vodafone and TPG proposition can now theoretically compete on a more level playing field.

“For the first time, Australia will have a third, fully-integrated telecommunications company,” said Vodafone Australia CEO Iñaki Berroeta. “This will give us the scale to compete head-to-head across the whole telecoms market which will drive more competition, investment and innovation, delivering more choice and value for Australian consumers and businesses.”

Competition is certainly not balanced in the Australian market currently. Increased competition might well fragment the market further, creating a ‘divide and conquer’ strategy for Telstra. It might have created more value for the consumer, as the ACCC so strongly insists, but it might have also worked out for Telstra, giving it a stronger position as market share is dwindled for the smaller players.

This ruling by no means guarantees the long-term health of the Australia telco industry, but it does create three converged players, perhaps the most logical position in the pursuit of sustainability.

FTC starts turning the screw on Big Tech

The Federal Trade Commission (FTC) has issued Special Orders to five of the technology industry’s biggest hitters as it takes a more forensic look at acquisition regulation.

Under the Hart-Scott-Rodino Act, certain acquisitions or mergers are required to be greenlit by the regulatory authorities in the US before completion. This is supposed to be a measure to ensure an appropriate marketplace is maintained, though there are certain exceptions to the rule. It appears the FTC is making moves to combat the free-wheeling acquisition activities of Big Tech.

Under the Special Orders, Google, Amazon, Apple, Facebook and Microsoft now have to disclose all acquisitions which took place over the last decade. It appears the FTC believes the current rules on acquisition need to be reconsidered.

“Digital technology companies are a big part of the economy and our daily lives,” said FTC Chairman Joe Simons. “This initiative will enable the Commission to take a closer look at acquisitions in this important sector, and also to evaluate whether the federal agencies are getting adequate notice of transactions that might harm competition. This will help us continue to keep tech markets open and competitive, for the benefit of consumers.”

While authorities have already questioned whether some acquisitions are in the best interest of a sustainable industry, in fairness, Big Tech has done nothing wrong. Where relevant, the authorities have been notified regarding acquisitions, and they have generally been approved. If the FTC and its cousins in other regulatory authorities believe the current status quo is unappealing, they only have themselves to blame.

In general, an acquisition will always have to be reported if the following three criteria are met:

  1. The transaction would have an impact on US commerce
  2. One of the parties has annual sales or total assets of $151.7 million, and the other party has sales or assets of $15.2 million or more
  3. The value of the securities or assets of the other party held by the acquirer after the transaction is $68.2 million or more

All three of these criteria have to be met before the potential acquisition has to be approved by the regulators.

Interestingly enough, the Android acquisition by Google is rumoured to be for roughly $50 million, therefore the third criteria was not met, and the team did not need to gain regulatory approval for the deal. This is perhaps what the FTC is attempting to avoid in the future, as while we suspect there was no-one in the office at the time with enough foresight to understand the implications, the regulator might suggest it would not have approved the deal in hindsight.

One of the issues being faced currently, and this is true around the world not just in the US, is that authorities feel they have lost control of the technology industry. Companies like Google and Facebook arguably wield more influence than politicians and regulatory authorities, a position few will be comfortable with outside of Silicon Valley.

Aside from this investigation, the FTC is also exploring Amazon in an antitrust probe, while Google and Facebook are facing their own scrutiny on the grounds of competition. There have also been calls to break-up the power of the technology companies, while European nations are looking into ways to force these companies to pay fair and reasonable tax. Across the world, authorities are looking for ways to hold Big Tech more accountable and to dilute influence.

Interestingly enough, we don’t actually know what the outcome of the latest FTC foray will be. It will of course have one eye on updating acquisition rules, though as Section 6(b) of the FTC Act allows the regulator to conduct investigations that do not have a specific law enforcement purpose; it’s a blank cheque and the potential outcome could head down numerous routes.