Consumers are faced with a dizzying array of telecoms and television services to choose from, at a price to suit every wallet. And increasingly they are opting to buy all those services from a single provider, triggering a major shift in the telecoms landscape.
The trend towards multi-play services gathered pace this year, leading telecoms providers to spend big to acquire the requisite capabilities. But they are not the only storeholders looking to bundle up their wares. The traditional TV providers are making their presence felt on the digital services high street, giving consumers more options than ever.
The world’s biggest telecoms operator by revenues, AT&T, is now competing as much–if not more–with the US cable industry as with its peers in the telecoms space. It closed its $48.5 billion acquisition of satellite TV provider DirecTV in July, giving it the largest TV customer base in the country. It immediately launched its All-in-One converged TV and mobile tariff and set about exploiting the cross-selling opportunity that it put at 39 million households, mainly DirecTV customers without an AT&T mobile service or AT&T customers without either U-verse or DirecTV video subscriptions.
Early 2016 will bring new offerings from the merged entity. "Within the next 30 days you’re going to see us announce some new capabilities, some new integrated products and prici ng that will bring together a really premium content package with a really premium wireless asset," AT&T chief executive Randall Stephenson said in December.
But the cablecos are not resting on their laurels, when it comes to both scale and the multi-play opportunity.
Charter Communications this year agreed to pay $10.4 billion for Bright House Networks and $56.7 billion for Time Warner Cable (TWC) and is working on a plan to merge the three into a single entity that will be the second biggest cableco in the US after Comcast. The market leader’s attempted $45.2 billion takeover of TWC fell apart early in 2015 after failing to win regulatory support. That could also be an issue for Charter, but while it is working hard to convince competition authorities of the benefits of the deal, Comcast has turned its attention to mobility.
Comcast and satellite provider Dish Network were both linked with T-Mobile US this year, both being keen to add a mobile string to their bow, although takeover talk has come to nothing…so far. Perhaps a more likely route for Comcast would be the virtual one; Comcast has a longstanding mobile virtual network operator (MVNO) agreement with Verizon and towards the end of the year appeared set to trigger it.
An MVNO makes sense for Comcast, said AT&T’s Stephenson, particularly given its ambitions in the enterprise space. "They need it," he said. But he is unconcerned about its potential impact in the consumer sector. "Competing in that market without owners’ economics is a tough pool," he said. "It’s going to be tough for MVNOs to come into this space."
The US is still an attractive market for newcomers though. France’s Altice announced its impending arrival with a $9.1 billion agreement to buy regional cable operator Suddenlink in May. It followed that up just four months later with a $17.7 billion bid for east coast cableco Cablevision.
Altice has deep pockets and in addition to i ts cable operations it owns a number of traditional telecoms assets in Europe. It created a strong multi-player in France when it acquired mobile operator SFR late last year and this year picked up Portugal Telecom–which operates in a relatively mature quad-play market–from Brazil’s Oi. All of which means the industry is left wondering how it will seek to leverage that experience in the US.
Altice in September indicated that it will pause its shopping spree, although it noted that it could change its mind if another cable player, Cox Communications, were to become available. It also pointed out that this hiatus could last anywhere from a few months to a few years, so don’t be surprised if it is hitting the headlines stateside again in 2016.
EUROPEAN TOUR
Altice also made its presence felt on the European side of the Atlantic this year.
Following the creation of Numericable-SFR, Altice made a move for rival player Bouygues Telecom, which is struggling to hang on to third place in France’s four-player mobile market. Bouygues rejected the offer, which reportedly came in at €10 billion, but still finds itself at the centre of M&A speculation; Orange and Bouygues denied reports that they were holding merger talks in late 2015.
Altice was also linked with Dutch telco KPN this year. It admitted such a deal might make sense–it owns cable operations in Belgium and Luxembourg–but said the pair were not in talks.
Ambitious Altice is not the only cable operator driving industry change in Europe. US-based Liberty Global was once again at the forefront of M&A activity. It hit the headlines mid-year after admitting to asset merger talks with Vodafone, although such a deal was always going to be difficult to structure and the negotiations came to nothing.
It had more success elsewhere though. Its Belgian Telenet unit agreed a €1.33 billion deal for KPN’s Base in April, and in November signed two separate deals to sell off some of Base’s mobile customers to Medialaan, turning the Flemish TV and radio station operator into a full MVNO, in a bid to win the backing of competition regulators. The European Commission is conducting an in-depth investigation into the deal, fearing it could harm competition, and is due to make a decision by March.
Meanwhile, Liberty Global’s Irish cable operator UPC–which adopted the Virgin Media brand used by its parent company in the UK this year–agreed to pay €80 million for free-to-air TV broadcaster TV3, closing the deal in December. "We have some exciting plans in the pipeline to step up competition for consumers," said Virgin Media CEO Tom Mockridge, alongside the rebrand.
Competition is certainly building in Ireland. Incumbent operator Eir, which ditched the Eircom brand to signal the start of its digital future, announced the acquisition of sports broadcaster Setanta Sports Ireland, a deal CEO Richard Moat described as an "important first step for us in television content ownership." Meanwhile, Vodafone’s Irish unit said it would enter the quad-play market with the launch of a TV service this year, but at the time of writing it had yet to materialise. However, the telco did launch Siro, a fibre-to-the-premises (FTTP) network developed with electricity provider ESB, in November.
Across the Irish sea, the British arm of quad-player Virgin Media embarked upon its £3 billion network infill plan, known as Project Lightning. Vodafone rolled out a fixed broadband and home phone service across the UK. And satellite TV and broadband provider Sky announced it will start offering mobile services in 2016 via an MVNO agreement with Telefonica.
UK incumbent BT has been building up its presence in the television space for a couple of years and this year picked up additional premium sports rights, including Premier League football and cricket’s Ashes tournament, and launched a range of new sports channels.
BT has now turned its attention to mobility. It agreed to pay £12.5 billion for the UK’s biggest mobile operator EE in February and is currently working through the practical and regulatory hurdles to closing that deal. The Communications and Markets Authority (CMA) gave its preliminary approval in October, noting that it does not believe the tie-up will impact on competition. BT also launched an MVNO using EE’s network in March, enabling it to bundle low-cost mobile services with its TV and broadband offerings and to push its content to the small screen.
M&A MELEE
While the BT/EE merger seems to be ticking the right regulatory boxes, the path might not be as smooth for Hong Kong’s Hutchison, which hopes to acquire Telefonica’s UK mobile operation O2 and merge it with 3UK. If it gets the go-ahead for its £10.25 billion deal, the tie-up will create the largest mobile operator in the UK. However, the merged entity will still lack a fixed-line presence, which could leave it at a serious disadvantage going forward.
It is by no means certain that the deal will be approved though. The European Commission’s competition arm is conducting an investigation and has until 18 April to rule on the case. The parties directly involved in the deal are doubtless hoping that competition commissioner Margrethe Vestager meant what she said earlier this year when she insisted that "every case has to be assessed on its own facts and merits."
That comment came after the Commission refused to back TeliaSonera and Telenor’s plan to merge their mobile operators in Denmark, famously causing the pair to abandon the deal in September. It remains to be seen if there will be a knock-on effect for other ongoing M&A deals.
Hutchison is involved in more than one. In August it inked a deal with Vimpelcom that will see the pair merge their Italian operations–3 Italia and Wind respectively– into a 50:50 joint venture valued at €21.8 billion. The resulting entity will be "a convergent player that will accelerate the ability to invest in the network, services and digital innovations," said Vimpelcom CEO Jean-Yves Charlier.
Wind is the second largest fixed-line player in Italy, behind Telecom Italia, whose market share has fallen below 60%, according to the latest figures from regulator Agcom. Wind and 3 Italia together served 33.5% of the Italian mobile market as of mid-year, putting them just over a percentage point ahead of Telecom Italia.
Telecom Italia is also re-orienting itself as a multi-player. It adopted the TIM mobile brand across all its retail operations in July to simplify its relationship with the consumer.
The Italian incumbent welcomed a new major shareholder this year in French media group Vivendi, which pledged "to support [it] over the long term and to develop its activities in southern Europe." As the year progressed and new Telecom Italia shareholders emerged–Xavier Niel and JP Morgan have built up positions of just over 15% and 10% respectively–it became clear that Vivendi intends to have some say in the telco’s strategy. At a shareholder meeting in December it won the right to appoint four new members to the operator’s board, including three of its own top management, and blocked a savings share conversion plan that would have resulted in the dilution of its stake in the company. Vivendi holds around 20.5% of Telecom Italia.
BRAZILIAN STANDOFF
Analysts for the most part agree that Vivendi has no real desire to fundamentally change Telecom Italia’s domestic strategy, but its operations in Bra zil could be a different matter. Vivendi acquired its initial Telecom Italia stake as part of a deal to sell its Brazilian broadband operator GVT to Telefonica.
Merging GVT with its Vivo mobile operation gave Telefonica a multi-play position in Brazil and left Telecom Italia’s TIM Brasil as the only one of the country’s big four mobile operators without a fixed-line presence. Thus speculation over TIM’s ability to survive as a standalone entity continued in 2015. Local player Oi in October revealed it will hold exclusive talks with investment group Letter One over the possibility of merging with TIM, but TIM is not involved in the discussions and Telecom Italia has repeatedly insisted it sees its Brazilian business as core.
TIM is the second largest mobile operator in Brazil. But with America Movil controlling 52% of Brazil’s pay TV market and 32% of its broadband sector, and Oi and Telefonica having big broadband presences and some pay TV share, it is difficult to see TIM surviving in its current form for much longer.
America Movil is still desperately seeking a licence to provide television services in its home market, but it is having difficulty convincing the regulator. In its third quarter results announcement it pointed out that it is facing intense competitive pressure from two big players–AT&T and Telefonica–and should therefore be relieved of asymmetric regulation and approved to offer pay TV.
AT&T is a newcomer to Mexico, having closed the acquisitions of mobile operators Iusacell and Nextel in the first half of this year. It immediately set about launching cross-border plans to tempt in new customers and is also in the process of introducing the AT&T brand to Mexico on a market-by-market basis alongside its LTE network rollout.
To bring things full circle, AT&T also gained a presence elsewhere in Latin America through the DirecTV deal, which brought extensive pay TV businesses in markets including Brazil, Mexico, Argenti na and others. It seems unlikely that AT&T will hold on to those operations in the long term, although there will be no quick sale due to the economic climate, CEO Stephenson explained recently. "They are single product companies and that’s not terribly exciting to us."
