Operator consolidation has mainly been associated with Europe, India and the USA in recent years, but it is happening in other regions too, as price wars heat up and mobile growth slows, driving the need for economies of scale.
Norwegian-based Telenor and Malaysia’s Axiata have announced a proposed deal to merge their respective Asian assets to create one of south Asia’s biggest operators, with a combined base of 300m customers and $13bn in annual revenues.
This would tilt Telenor’s internationally diverse business more decisively eastwards and leave it with a controlling 56.5% stake in the combined business. The rest would be held by Axiata.
The new business would have its headquarters in Malaysian capital Kuala Lumpur, and would consolidate operations in Malaysia, Myanmar, Pakistan and Thailand, where both the operators currently compete with one another.
Axiata’s subsidiaries in Cambodia, India, Indonesia, Nepal and Sri Lanka would also be part of the new group, but its Bangladeshi business would not – it would still be run separately by its parent.
The deal has many regulatory and other hurdles to leap before it becomes real, but if it succeeds, it will deliver far greater efficiencies than the cost-cutting programs both telcos have adopted in recent years to try to boost profitability and free up cash to invest in 5G and digital platforms. Telenor said it would target synergies of about $5bn from the merger.
Most of the units involved have good operational performance records, but are working in very competitive and low cost markets. “I am confident this will create significant value for our shareholders and will be beneficial to our customers,” said Sigve Brekke, Telenor’s CEO, in a statement.
Telenor believes the combined business would generate annual sales of about $13bn and EBITDA of about $5.5bn. Its shares leapt by 4.5% in Oslo on the news of the plan.
Already looking to focus regulators’ minds on the positives of the deal, rather than the likely job cuts and reduced consumer choice, Telenor talked of plans for “accelerating technology transformation and digitization in Malaysia and across Asia”, which would be enabled by the greater scale and efficiency of the new group. It said it would immediately set up a Malaysian Research and Innovation Center focused on 5G, the IoT and artificial intelligence if the deal goes ahead.