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Network Operator Consolidation – The Race is On!
Author: Jeff Orr, Senior Analyst - Consumer Electronics
Third generation (3G) mobile technologies are
finally coming of age. Lead equipment vendors for both network infrastructure
and 3G mobile devices are in place. The larger national and international
carriers are circling regional 3G operators like hawks, assessing the field and
identifying potential acquisition targets. New market entrants for the mobile
broadband and fourth-generation (4G) services are establishing alliances to
compete financially with veteran operators. A reduction in the total number of
global network operators is underway. Does this optimization signal a general
weakness in the service industry or a reflection of crossing into the next phase
for mobile communications?
Aggregation is one method being used to thwart competitive pressures from
regional operators infiltrating a local market or removing the possibility of
takeover. Until recently, Brazil’s mobile operators have been dominated by
regional leaders from Portugal and Spain (Telefonica’s Vivo), Italy (Telecom
Italia’s TIM) and Mexico (America Movil’s Claro). Brazil's largest phone
operator Tele Norte Leste Participacoes (“Oi”) announced a late April deal to
buy control of smaller local rival Brasil Telecom Participacoes. The move is
intended to keep mobile revenues inside Brazil by establishing a major local
player. In another late April move, Freenet of Germany agreed to buy rival
Debitel for EUR1.63 billion, forming the country's third-largest mobile-phone
company and fending off a takeover from United Internet AG. The formation of a
larger carrier entity limits the likelihood that a takeover will occur and keeps
mobile service revenues in the local market.
Operators are using acquisitions and buyouts to grow their war chest in an
effort to become national players in next-generation mobile networks. India’s
Reliance Communications (RCom) acquired a 90% stake in UK-based eWave World, a
provider of WiMAX services and spectrum license holder in several countries
including China. The eWave World joint venture in China co-owns and operates
36,000 km of optic fiber across the top 30 cities in China. A nationwide Chinese
broadband license has already been applied for by the JV. The telecom firm plans
to invest about Rs 2,000 crore (USD500 million) over the next few years to build
and acquire WiMAX networks in emerging markets. “4G WiMAX networks in 50
countries would enable us to offer services to over 75% of global population,”
said Reliance Globalcom CEO Punit Garg, the global operations subsidiary of RCom.
RCom’s venture capital arm also invested in French WiMAX silicon provider
Sequans Communications late last year.
The trend towards fewer carriers in the emerging mobile Internet market is
starting as well. After speculation about how mobile WiMAX services will emerge
in the United States and capitulation on who will finance the endeavor, Sprint
and Clearwire announced last week that they will merge efforts into a new
iteration of the Clearwire brand. The new business accepted USD3.2 billion in
investments from Google, Intel Capital, and a trio of cable operators – Bright
House Networks, Comcast Corporation, and Time Warner Cable. The mega-merge
occurs before the first mobile WiMAX revenues have ever been lifted from
consumer pocketbooks.
Fewer operators mean fewer prospects for radio access network (RAN) equipment
manufacturers. Motorola’s lengthy relationship and installed base with U.S.
fixed wireless operator Clearwire could pay off in the long-term after sharing
initial infrastructure deployment responsibility with Samsung for the Sprint
XOHM mobile WiMAX service. Conversely, Nokia’s late entry into the Sprint
build-out might relegate the vendor to device supplier in the new U.S. mobile
operator. Nokia was named to provide infrastructure for multiple cities in the
state of Texas with estimates of a 2008-2009 build. With Sprint’s change from
network operator to lead JV partner, Nokia’s infrastructure partnership with
Sprint is thrown into question.
The mobile communications industry is undergoing a transformation in preparation
for next-generation mobile networks. Alliances, mergers and acquisitions shuffle
the operator playing field; keeping the market guessing what hand will be dealt
next. Our bet is that more of these exciting transactions will occur over the
next 2-3 years.
By Jeff Orr, Senior Analyst - Consumer
Electronics
For more information you can contact the author:
jeff@maravedis-bwa.com
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