Mergers and acquisitions don’t lend themselves to predictions. The uptake of new services, the effects of regulation, extrapolating existing trends – these can all be modeled, but with M&A, you can’t do anything ex ante. More to the point, a merger mdoel is just that - it’s not the kind of event you want to include in an outlook, because it is so unpredictable. The impact is clearly huge though. AT&T’s takeover of T-Mobile USA is a good example. This dropped out of nowhere (previous speculation centred on a merger between Sprint and T-Mobile, despite their different technologies), and it raises numerous questions: What happens with the iPhone? Will the T-Mobile brand still exist after the merger? How will AT&T ever get this deal past the Department of Justice and the FCC? etc.
It does make it interesting to look at the possibilities for such a transformational deal in the Netherlands. Deutsche Telekom will have EUR 10 billion in shares in AT&T after the deal, which creates plenty of room for speculation in the coming months. A deal outside the telecom sector can’t be ruled out, such as France Telecom’s recent acquisition of a stake in Dailymotion (the French YouTube). The Dutch market is controlled by six major players (KPN, Vodafone, T-Mobile, Ziggo, UPC and Tele2) which could all profit from a takeover. Some of these are already the subject of speculation:
- Tele2 NL: on it’s own, it has no chance of joining the top two players in the Netherlands, which is the goal the parent company sets for all the Tele2 subsidiaries.
- UPC NL: if parent company Liberty Global turns its attention to Eastern Europe as part of its ongoing portfolio management, the Dutch subsidiary could suddenly be put up for sale.
- Ziggo: owned by private equity groups (Cinven, Warburg Pincus), which by definition are always just temporary owners. A sale or IPO will provide the exit opportunity.
And what are the candidates the big six could be eyeing? KPN with its strong position will have to stay on the sidelines in a few sub-markets, but otherwise there’s something for everyone. To start with, the three discussed above. For Tele2, the most important candidates are Vodafone and T-Mobile. For UPC NL, only private equity is an option, and for Ziggo, Liberty Global is the favoured merger partner.
There’s also CanalDigitaal, which is also owned by private equity (Providence), and as such will at some point change owner. The challengers on the TV market are the most likely candidates, KPN and Tele2, as well as Vodafone and T-Mobile.
CAIW is also a candidate. CIF (Communication Infrastructure Fund) is always stuck with Caiway, the services arm of CAIW, while it focuses exclusively on the passive layer. This is a difficult sell, as the other cable operators (that is, Ziggo and UPC) prefer a vertically integrated company, so including the passive layer. An IPO can’t be ruled out, especially if CAIW succeeds in expanding its wings further. CAIW is already active on other cable networks (Rekam, KBG, Harderwijk, Hilvarenbeek, Pijnacker, Albrandswaard, Hendrik-Ido-Ambacht), and the market climate is positive at the moment for these type of assets. Tele2 is in theory also a candidate for CAIW, as it is mainly a virtual operator.
This brings us to another category: other small cable companies. The hunt is open for the last 8 percent, the cable operators outside Ziggo and UPC. CIF is likely to be active here, in order to invest fully its available funds, but Ziggo and UPC are also getting interested. Reggefiber may also be in the market, to mirror CIF’s strategy: buy cable companies in order to eliminate you biggest competitor. However, cable companies are often foundations, which are not eager to sell their holdings. The aim of the foundations is usually to offer the best service at the lowest price, and it’s questionable whether that can be met by selling to a commercial party. Delta is a separate case, as the current owner could easily decide in future to focus only on utilities (to simplify, we classify broadband as communication, and not a utility).
And finally, the FTTH market. There is a great deal of fragmentation, with newcomers at all levels:
- OBR (Rotterdam), LomboXnet and start-ups Jelcer and GlasvezelVught are mainly active at the passive layer;
- OONO, Teleplaza and start-ups GlasOperator and WDoo are in the active layer;
- Glashelder, Tweak, Plinq and KickXL are pure service providers;
- Existing providers that are also becoming active in FTTH: Solcon, Concepts ICT (and likely also Scarlet?).
Consolidation will clearly take place on the FTTH market, which will only benefit from this. How and by whom, only the future will show. After all that, we have’t even discussed the possibility that KPN, Vodafone or T-Mobile could change owners.
