Network Operator Consolidation

ARTICLE

Network Operator Consolidation - The Race is On!

By Jeff Orr, Senior Analyst - Consumer Electronics
Contact the author at jeff@maravedis-bwa.com

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.

For more information you can contact the author: jeff@maravedis-bwa.com