"Let the buying begin," says telecoms analyst

Despite the economic chaos, telecoms firms should not let a sensible attitude of caution turn into a bunker mentality. For those with tangible resources available, analysts say a more aggressive strategy is advisable.

This week, industry analyst Ovum predicted that the financial crisis will force a sea change in the telecoms landscape, largely outdating the country-specific telco model.

With the exception of a couple of truly global carriers such as Vodafone and Hutchison, and regional players like Zain and MTN, the vast majority of service providers operate primarily within one country. National rivalries, regulatory hurdles, and other constraints have limited cross border consolidation. And while European carriers have bought into overseas markets, they have rarely integrated operations to maximum effect. The same can be said of carrier consolidation in the Asia region, which, with the exception of SingTel, has been minimal.

Ovum principal analyst Matt Walker, reminds that the collapse of Global Crossing and other subsea network owners, such as FLAG Telecom, during the 2000-2002 bubble burst scared investors away from business models appearing aimed at creating truly global telecoms firms. “Yet telecoms is characterised by significant economies of scale and scope. The industry is not effectively exploiting this fact, in part because it has never been forced to,” said Walker.

Some might suggest that consolidation is bad for competition, but Ovum believes otherwise and suggests that in most countries, no more than three viable, well funded, facilities-based mobile providers are needed for vigorous competition.

“Even with ‘just’ three competitors – which in many industries would be an oligopoly (leading to high prices, poor service, and low innovation) – the mobile industry on the whole has pushed pricing down low, and innovation has been good, with the support of handset makers, third-party application developers, and faster radio interfaces,” Walker said. “So, regulators’ fears of too much consolidation limiting competition should be conditioned by this fact. Maybe it is time to let the buying begin.”

That’s not to say mergers are easy, but the opportunities to pool risk, increase access to capital markets, and better negotiate with suppliers are worthy goals. For those service providers with cash available or the ability to creatively finance, Ovum believes there will be many opportunities to grow inorganically over the coming months and distracted companies will miss prospects arising from the chaos, leaving them unprepared for recovery.