Wednesday, 11 June 2008

Recession brings imminent consolidation...

Some big M&A activity is in the off-ing. Verizon has bought Alltel. Orange is in for TeliaSonera. All, apparently, as a result of the global credit crunch. I'm not 100% convinced that the events can be ascribed to the problems with sub-prime mortgages and the associated economic problems. But, it does seem that recession provides additional impetus for consolidation.

The logic works like this: Where everyone is making money eyes are on the top line. When the money starts to dry up the eyes go to the bottom line and thoughts turn to creating economies of scale and generating efficiency savings. What's the best way to do that? Consolidation. Also, in hard times good deals tend to be easier to come by. Compare the $28 billion Cable & Wireless got from PCCW for C&W HKT in 2000 with the couple of shiny stones that they got for all the rest of their assets mere months later.

So recession naturally leads to consolidation and, let's face it, in most European markets with the proliferation of MNOs and MVNOs a bit of consolidation wouldn't be amiss. In the UK it's hard to see Orange, O2 or Vodafone selling, but T-Mobile and 3 would be potential targets, both for each other and for other MNOs or maybe Virgin or BT. Not a new prediction perhaps, but I think the chances have increased substantially with the imminent threat of recession. I would be surprised if there were still 5 MNOs in the UK by the end of '09.

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