Despite a spate of recent bad news for deals like AT&T-TimeWarner and Sprint-T-Mobile, 2017 will be remembered for its completed telco mergers.
With AT&T’s $108bn bid for TimeWarner languishing under Justice Department scrutiny and Sprint’s and T-Mobile’s unification being called off, this might sound odd, but: 2017 will be remembered as a frothy year for telco mergers and acquisitions.
CenturyLink’s Level 3 $34bn pickup in October was only one-third the value of AT&T-TimeWarner, and lacked the star power of film and TV subsidiaries, but it was still a major deal, creating the second-largest U.S. fixed-line operator and concentrating much of some Western states’ internet access under one corporate banner.
Verizon spent a total of $5bn on three different headline-making acquisitions in 2017: Straight Path, which had a generous dowry of wireless spectrum; Yahoo, which fits will with Verizon’s AOL subsidiary; and XO, which provides cellular infrastructure. . Windstream spent another $1bn to acquire Windstream and Earthlink in plays to make it a leader in unified communications for business..
AT&T-TimeWarner can still happen
Besides, it's still widely viewed as probable that AT&T-TimeWarner will be blessed by the yearend. It has already cleared jurisdictional hurdles in Europe and South America, not to mention elsewhere in the U.S.’s labyrinthine regulatory landscape.
The major issue surrounds TimeWarner’s CNN unit. The Justice Department is expected to file an antitrust lawsuit but, in the absence of AT&T’s ownership of a competing news operation – it is difficult to guess the grounds of such a suit. Donald Trump promised in his campaign that his administration would oppose the merger. Many believe his Justice Department’s opposition has more to do with the candidate’s promise and the president’s longstanding displeasure with CNN’s reportage.
T-Mobile-Sprint not a total loss
That leaves Sprint-T-Mobile as the only high-profile flameout. Even so, T-Mobile will still walk away from 2017 with $8bn worth of new spectrum licenses. That should give it the kind of network coverage that had only been the domain of Verizon or AT&T up until now.
Nor should tears be shed for Sprint. Its principal backer announced a $6bn war chest in that carrier’s network upgrades.
These two businesses have patient money – and a lot of it – behind them. It might be useful to think of Sprint and T-Mobile not as standalone companies and more like the telephone switchboards for their owners, Japanese telecom giant Softbank and Germany’s Deutsche Telekom, respectively.
And, should there be nothing left to buy, the possibility of stock buybacks in 2018 has already been broached by T-Mobile CFO Braxton Carter.
Telecom mergers are not confined to any hemisphere, of course. Even as India’s economy flails and its broader M&A appetite diminishes, KKR just led an international consortium’s $11bn buyout of two Indian wireless infrastructure companies. And even before that deal, the only bright spot on the Subcontinent’s otherwise bleak M&A market was a couple $1bn telco deals.
The tale of the tape shows that 2017’s third quarter was the best 91-day period for telco deal volume in the past two years. According to PwC, it featured 42 deals, albeit for a total of only $10.7bn.
"Telco deals continue to be popular as these companies look to improve existing infrastructure, broaden their service offerings and evaluate new technologies,” said Bart Spiegel, PwC’s U.S.-based partner for telecommunications, media and technology. “The majority of these deals don't grab the headlines as transformative market plays, but rather exist to improve go to market strategies and operational efficiencies.”
Even if network provider AT&T fails to acquire content producer TimeWarner, Spiegel did not see this as a model which all others will need to adopt.
“While vertical integration is a compelling strategy,” he told Global Finance, “scale and synergies are equally attractive and will continue to drive M&A.”