Holiday season M&A rumors swirl round Europe’s MNOs – and Intel

It’s a clear sign that the holiday season is looming, when M&A speculation goes into overdrive around mobile operators. But the European MNOs at the center of the current rumors were all keen to deny reports of impending deals.

Across the pond, Sprint’s talks with T-Mobile are off of course, but there is still likely to be further consolidation next year, with Dish, TMO and certain cablecos in the frame. In Europe, MNOs, telcos and cablecos are also realigning themselves to address a consumer market that is driven by fixed/mobile convergence and video multiplays rather than mobile services alone. Indeed, consolidation that is geared to multiplay business models are often more likely to survive competition authorities’ scrutiny than MNO-only deals which reduce the number of mobile providers in a given market.

That may be an outdated view of the competitive landscape in telecoms and TV, but it encourages speculation about mergers which would strengthen operators’ positions in video, quad play or in emerging services like smart home and Industrial IoT.

Orange is often at the heart of the rumors, but CEO Stephane Richard, speaking at the telco’s investor day last week, brushed off questions about a series of planned acquisitions. He said 2017 had been a “decisive year” which delivered strong growth plus expansion in mobile, fiber-to-the-home and newer markets like content and banking. But he insisted: “Let me be clear, footprint expansion is not our priority.” He said Orange had established four M&A priorities “in line with our transformation”, but expanding into new markets was not one of them.

The main priority is to invest in the network itself to achieve further fixed/mobile convergence, expand fiber and prepare for 5G. Richard said: “This could mean in-market mobile-to-mobile consolidation, where possible and appropriate.” That continues a theme to which Europe’s MNOs often return – that a better investment climate would be created if the EU antitrust regulator were more open to mergers between MNOs.

Some have occurred in recent years, though with heavy conditions – that of E-Plus and Telefonica O2 in Germany, for instance, or Hutchison’s acquisitions in Italy and Ireland to boost its Three units. However, its attempt to do the same in the UK, by buying Telefonica O2 there as well, was blocked by regulators, while BT’s purchase of the largest MNO, EE, to create a multiplay giant, was allowed.

Richard was more lenient towards the authorities than usual, saying that pan-European consolidation was not being stopped by regulatory boundaries, but Orange was unlikely to make such a move.

The other three criteria for M&A at Orange are, according to Richard: “Mobile-to-fixed convergence everywhere in Europe, consolidation and optimization of our infrastructure, as well as steps to manage our asset portfolio.” He also said the company may boost its content and mobile financial services plays through cash injections as Orange looks to develop new revenue streams.

But the telco’s senior EVP of innovation, marketing and technology, Mari-Noelle Jego-Laveissiere, said 5G-specific investments between 2017 and 2020 would be “marginal”. However, she said more than 90% of Orange’s mobile sites in France are now backhauled by fiber, which makes them “5G-ready” and “means limited future implementation costs”. For Orange, there are three drivers to 5G, she said – enhanced mobile broadband; fixed on 5G; and new services including more vertical applications for specific industries.

Dutch telco KPN is also denying plans to make international acquisitions, amid speculation that it wants to merge with Danish operator TDC,  Finland’s Elisa or Belgium’s Proximus (even though it sold its own Belgian mobile unit, Base, to Liberty Global only two years ago).

In a statement, KPN said it had “noticed recent rumors in the market suggesting a change in strategy” but its current plan was to “further strengthen its position in the Dutch market”. It added: “KPN’s M&A strategy is focused on small in-country acquisitions and it has no plans to make international acquisitions.”

A Bloomberg report had said KPN’s incoming CEO intended to pursue international acquisitions, following years of divestment and home-market investment in fiber. Maximo Ibarra, CEO of Italy’s Wind, will replace KPN’s current CEO Eelco Blok in April 2018. Bloomberg sources said Ibarra wanted to create a larger company which could achieve greater scale in a competitive European market. However, that would reverse Blok’s recent strategy of divesting international subsidiaries such as those in Germany (E-Plus) and Belgium (Base).

Meanwhile, Vodafone Malta is the latest MNO to fall victim to regulators’ hatred of deals that would reduce the number of mobile players. The company has abandoned plans to acquire fellow Maltese operator Melita, having failed to placate the Malta Competition and Consumer Affairs Authority (MCCAA).

The proposal, made in May, had a target completion date of the end of 2017. It would have seen Vodafone owning 49% of the newly merged operator with the remainder held by Melita shareholders.

However, together, the companies would have had 67% market share, according to GSMA Intelligence estimates, and reduced the field to just two MNOs. Vodafone Malta is the market leader with 363,000 connections, followed by Go with 235,000 and Melita with 106,000.

Like most mergers in Europe, the real goal was to established a fixed/mobile player – a strategy Vodafone is pursuing in most of its markets. Earlier in the year, Vodafone said the deal would enable the creation of a “fully integrated communications company with the scale and resources required to offer competitive quad play bundled mobile, fixed broadband, fixed telephony, and TV services”.

In a statement announcing the termination of talks, Vodafone Group said: “It has now become clear that the parties are unable to satisfy the MCCAA’s requirements and consequently they have decided to terminate the transaction and withdraw the notification.”

And it is not just operators which are the subject of holiday season merger speculation. There was a heated debate between analyst last week over rumors that Intel itself could be a takeover target before 2021, thanks to its weak position in the mobile market, the decline of its PC processor business, and uncertain progress in new sectors like the Internet of Things. In 2017, it is likely that its long-held position as the world’s largest chipmaker will be usurped by Samsung Electronics, buoyed by booming demand for memory chips.

However, Jack Gold, president of J. Gold Associates, said he does not see any companies on the horizon which could acquire Intel. “I strongly disagree with this assessment and speculation. I expect Intel to continue to be an acquirer of technology companies. Just because they are not a major power in mobile devices does not mean they don’t have a future,” he told Mobile World Live.

And Intel would be a tough acquisition because its businesses are now so diverse, including autonomous vehicles, artificial intelligence, digital mapping and many other activities, which may boost processor sales, but are also delivering broader platforms and services. “How is that a recipe to be acquired? And by whom?” asked Gold. “Too many still see Intel as a PC chip supplier, when in reality that is a decreasing part of their overall business, and the rest of their growing businesses are quite healthy.”

By contrast, Canalys president Steve Brazier, in his keynote at the Canalys Channels Forum, said he expects Intel to be a takeover target in the next three years. But any bid for Intel would need to be at least twice the value of Broadcom’s $130bn offer for Qualcomm (Intel’s revenue is about $61bn while Qualcomm’s is $23bn, or $32bn if it succeeds in its own acquisition of NXP).