America Movil interest in KPN shows shift in global power

America Movil’s intention to take over a 28 per cent stake in Dutch operator KPN is an indication of two important developments in the changing global telecoms sector. While some European operators are still expanding internationally, the balance of power in the global market is shifting away from old European players to emerging telecoms giants. At the same time, new global players from the emerging markets are looking to diversify their presence with the main objective of bringing in the know-how and experience of operators from the mature markets.

The interest of the Mexican giant in investing in KPN comes at a time when European operators are struggling. In recent months, we have seen emerging players investing in European markets, such as Russian operator Vimpelcom acquiring Italian assets, and Egyptian magnate Sawiris acquiring stakes in Telekom Austria. Like many of its European peers, KPN is a troubled company which makes it a good acquisition target for a buyer looking to turn around its business. In 1Q12, KPN saw its shares at their lowest level since June 2005 and had to cut the shareholders’ dividends. For cash-rich America Movil, this situation is an attractive opportunity to extend its reach. The Mexican giant has a history of investing in troubled regional operators to exploit synergies and turn them into successful companies. To date, America Movil has concentrated all its efforts in the high-growth emerging Latin American markets, but it has now become a good time to invest in the mature European markets.

From a competitive standpoint, America Movil’s biggest rival Telefonica already benefits from a presence in a variety of diverse markets, including its home market Spain, the UK, Germany and other European markets as well as Latin America. By investing in KPN, America Movil would go head to head with Telefonica beyond Latin America and into Europe. As European economies are struggling, Latin America remains the major strategic focus for both groups, but it is important for America Movil to build a presence beyond its core markets.

Bringing the know-how of an innovative European player such as KPN will also be an important asset for America Movil in terms of innovation. Telefonica has already been able to export innovative services from Europe to Latin America, for example cloud services for the highly strategic enterprise market. America Movil’s fixed arm Telmex has struggled to bring innovation to market and could certainly benefit from KPN’s know-how. Ultimately, bringing innovation means increasing the value of the customer base through the uptake of mobile data services which will boost the operator’s financial performance. This is a key objective for a player like America Movil as it is operating in markets with predominantly prepaid user bases with significantly lower ARPU and EBITDA than mature markets.

Nonetheless, we are not in a “gold rush situation” in Europe and not all acquisitions will eventually go through. What Europe brings to the emerging market operators is primarily know-how, but also the opportunity for industrial synergies and implementing best practices including cost-cutting.

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