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Author: Narola

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Third Quarter Earnings Season Around The Corner (And Yes, It’s Cloudy)

Posted on | by Narola

Over the next 3 weeks, companies across the communications sector will begin reporting third quarter (3Q17) results.

Watch for telco progress

The world has never been so reliant on secure communications, but the underlying market is in a bit of turmoil. The cloud and its key providers keep on growing, but many large telcos are treading water. They’re trying to cut costs (both operating & capital), and use modest investments and partnerships to tap revenue growth in areas like video/content and IoT. Many are also involved in M&A deals, which can help competitiveness if integrated well, but it can also make you lose a step. Nearly all telcos are under some level of competitive pressure from the cloud world, some extreme. As such, the most interesting earnings ahead lie in November, when most telcos report. But we’ll learn a thing or two in October.

Economic outlook stabilizing

The IMF’s Managing Director, Christine Lagarde, gave a relatively optimistic speech yesterday on the global economic outlook. Lagarde noted that the IMF’s last (July 2017) forecast projected 3.5 and 3.6% GDP growth for 2017 and 2018, respectively, adding that the forecast to be released next week “will likely be even more optimistic…Measured by GDP, nearly 75 percent of the world is experiencing an upswing; the broadest-based acceleration since the start of the decade.” She also noted some important risks, “from high levels of debt in many countries, to rapid credit expansion in China, to excessive risk-taking in financial markets.” The broadly positive tone was a plus for the communications sector, though, where revenues tend to be closely linked to overall GDP.

Wide range of companies play into the communications sector

The communications sector’s supply chain is long & complex, from chip vendors selling into networking & data center markets (e.g. Intel, Micron, Amphenol), to infrastructure vendors supplying hardware, software & related services directly to network operators (Ericsson, Huawei, Ciena); to services & software specialists (Amdocs, Mavenir, Nutanix), to the network builders & operators themselves. These can be telcos (Orange, Softbank, Verizon), cloud providers (Microsoft, Amazon, IBM), infrastructure specialists (Equinix, Zayo, Crown Castle), or part of another vertical market building large carrier-scale networks (finance, energy, government).

Most of the suppliers along this chain sell into other markets beyond communications; that’s most obviously the case at the chip level, but also for others, including IT services vendors. Some cloud providers (IBM, HPE, SAP, and Oracle in particular) are also large suppliers of IT equipment & services to telcos, who they compete with in some areas.

Another layer of complexity is manufacturing: few big tech vendors actually do this themselves nowadays, so electronics manufacturing services (EMS) players (e.g. Benchmark, Flex, Jabil) are also relevant. Note that some companies in the cloud (e.g. Facebook, Alphabet/Google) develop their own product designs, and contract with EMS/ODM partners to manufacture and ship to site.

Look for the cloud effect in October results

Despite the IMF’s endorsement for overall growth, the communications sector is less certain. Many big players are struggling with changes wrought from the cloud, and finding top-line growth isn’t easy. The growth of “the cloud” will be seen across earnings, sometimes indirectly. Cloud is motivating business strategy shifts, new investments, mergers, and layoffs. The latter subject will surely come up at Ericsson’s 3Q17 call, set tentatively for October 20.

Many semiconductor players selling into communications markets report earnings later this month, starting the 19th of October (TSMC) to the 30th (Cavium; estimated date). One of the early (19 Oct.) reporters, Maxim Integrated, also illustrates the impact of the cloud.

Maxim’s 2016 revenues were about $2.2B, flat from 2015 and down slightly from 2014. Last month, it announced a “business model update“. One goal was to increase operating margins, another to reduce dependence on individual large customers. Also important, though, is the need to better address cloud applications. Maxim does this through its “Comms & Data Center” unit, focused on data center optical connectivity & power.

When Maxim crafted its strategy shift, Intel’s dedicated “Data Center Group” (DCG) may have been on Maxim’s mind. Intel’s DCG revenues were $17.8B in the 12 months ended June, from $13.4B 3 years prior (3Q13-2Q14). That’s attractive growth, when it’s (mostly) organic and comes with above average margins: in the first half of 2017, 42% of Intel’s operating income came from DCG, which contributed only 29% of revenues. Intel reports on October 26th.

Some positive early news from an unusual reporter

Not all companies follow a calendar year-based fiscal year, and some also stagger their quarters. Accenture is an example. Its fiscal year ends in August. The benefit of this, for a market watcher, is that Accenture already reported its equivalent of 3Q17 (June-August 2017).

The results, published on September 28, are positive for the company’s “Communications, Media, & Technology” (CMT) vertical market. Accenture’s CMT revenues were $1.82B in 3Q17, up 7% YoY; CMT revenues for the 12 months ended August were also up, by 4%, to $6.88B. This is good for Accenture, but it’s too early to tell what it means (if anything) for the sector. Accenture provides a wide range of software & services to CMT players. Its growth could be driven by market share gains, or an expanding market: telcos are leaning more on vendors/partners (e.g. Accenture) in certain areas, which can expand the addressable market. Digital transformation is one area. Importantly, Accenture is offering a number of services geared towards new service rollout & management.  That hits what telcos need most of all: new revenue streams.

(Photo credit: Diego Jimenez)

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Comtech Expects Flat 2018; US Market An Issue?

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If you follow telecom closely yet haven’t heard of Comtech, that’s no surprise.

Acquisition of TCS in 2016 doubled the company’s size

Comtech Telecommunications Corp. is far smaller than the biggest vendors in the  market (Huawei, Ericsson, Nokia, Cisco etc). But it’s nearly doubled revenues in the last two years, to $550M for the 12 months ended July 2017. A rough estimate of the telco piece of this is $200M, including both wireless & satellite. It’s worth checking out.

Most of Comtech’s recent growth has come from the acquisition of TeleCommunications Systems (TCS) in Feb 2016. That deal reinforced Comtech’s already strong position supplying specialty transmission and mobile data products to government end users. The deal also gave the company valuable distribution links into wireless operators, where TCS does well with “mission-critical C4ISR solutions and next generation emergency 911 services.”

For the new Comtech, the TCS deal has clearly helped it most in one segment: US customers not part of the federal government (figure, below). That includes US state & local governments, but lots of telcos as well. Comtech’s announced US telco customers include AT&T, Comcast, Sprint, Telefonica, and Verizon.

comtech-mtnconsulting

From zero to $201M in debt

Comtech is in a stronger position post-TCS to sell both to government & wireless telco customers, but the deal came with costs. Prior to buying TCS, Comtech had $151M in cash on hand and no debt (July 2015). After the deal (as of July 2017), Comtech’s cash and cash equivalents balance was just $42M, and it now has $201M in debt.

To service its new debt, it needs growth (among other things). Yet revenues for the three months ended July 2017 fell 3% YoY, and Comtech is guiding the market for just 0-4% revenue growth in FY18. A tighter government spending climate in the US could be an issue. A coming slump in US wireless capex is another likely contributor. (And this is something to look for as Verizon, AT&T, and Sprint report earnings over the next few weeks.) It wouldn’t surprise me if these twin pressures encourage Comtech to make a bolder play in search for growth. As the CEO said on last month’s earnings call, “the integration of our TCS acquisition and focus on gross margin is largely complete. We have now shifted our focus from integration to growing our business.” Turning back to M&A is one option for Comtech, although it could end up being the target.

(Photo credit: Jake Sloop)

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China Mobile To Go (More) Global?

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Buying opportunities

During the 2008-9 financial crisis, some wondered (including me) if the relatively flush Chinese operators would use the downturn as a buying opportunity into overseas telco markets. China Mobile seemed promising, given its (now even higher) cash reserve. CM did make a small move before the crash, when in 2007 it bought into Pakistan’s mobile market.

What’s actually happened in the last decade was, not much.

China Mobile has continued to invest in Pakistan, helping its “Zong” unit become the third-ranked player in the market. This year, roughly $200M of China Mobile’s 2017 capex will support Zong, to expand 3G/4G coverage. That’s less than 1% of CM’s projected capex of 176B RMB for this year, though. Overseas growth simply hasn’t been a priority for CM or its main rivals, given the size and growth rate of the domestic market.

State ownership implications

Chinese government entities retain majority control over each of the big 3 telcos. There’s nothing nefarious about this; it used to be common in most of Europe, and still pops up in a handful of other large countries. But it does clearly color investment priorities.

That’s certainly been the case in China. The government has been aggressive in using its ownership stakes, not just regulations, to manage the sector. China Mobile’s choice to invest in Pakistan in 2007, as opposed to say its neighbor to the east, was part of a larger strategy. That’s now culminated in the China Pakistan Economic Corridor.

Bailing out Oi?

With that, one recent story is interesting.

China Daily reported last week that China Mobile might be buying Oi (once known as Telemar), a Brazilian operator plagued by debt issues and undergoing restructuring.

Assuming it’s true, CM’s primary motivation would be ROI (return on investment). However. The China Development Bank would also be involved, per the story. CDB has been an active overseas lender in the telecom sector for many years (in Africa, for instance). It’s also active in Latin American telecom, partly through a $1B 2009 loan to America Movil. CDB has more of a political role than China’s other banks.

CDB lending is typically tied to some commitment to rely heavily on Chinese technology, and/or Chinese labor. As such, a CM/CDB-led acquisition/bailout of Oi will benefit Chinese tech vendors, all else equal. Ericsson, Nokia, Cisco and others active in Brazil will have to watch this very closely.

The bigger question is, will CM start to spend more of its cash stockpile overseas? It has 5B RMB in debt, true, but in the first six months of 2017 its free cash flow was 53B RMB, over 10 times that. Its cash and cash equivalents balance in June was 406B RMB, around US$61B. That’s plenty of buffer to expand, especially with support from the China Development Bank.

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Rising Costs Plague India’s Tata Teleservices As Competition Intensifies

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Tata Group is looking for a clean break

Tata Teleservices (TTSL) has family ties to one of India’s biggest industry groups, but that hasn’t helped it escape the “Jio effect” in recent years.  With just 8.7 million subscribers and a (unified service) license covering only Mumbai and (rest of) Maharashtra & Goa, TTSL has struggled against larger nationwide competitors. Tata Group’s new chairman is now reported to be looking to sever ties with TTSL.

This comes a few months after NTT DoCoMo sold its stake in TTSL back to Tata Sons, consolidating Tata’s ownership in TTSL.

The Jio effect

Reliance Jio has used its nationwide unified license and deep pockets to blanket the country with its new network, and has been pricing and bundling very aggressively. Jio’s push has affected all major operators, but small ones like TTSL have had it especially hard.

TTSL’s license has always limited its growth ceiling. As India’s telecom sector has exploded in recent years, though, TTSL has actually shrunk. Its peak was in March 2011, when it reported 16.9 million subscribers. It now has just over half that subscriber base.

Despite the mobile decline, TTSL’s fixed division has grown recently. While TTSL doesn’t break out details, it does report that wireline grew from 30% of revenues in FY2014-15 to 36% in FY2016-17. Total company revenues have grown a bit (20%) since FY2011, despite TTSL’s mobile user decline and India’s declining mobile ARPUs . TTSL’s wireline business has expanded.

Cost curve has been going in the wrong direction

TTSL’s EBITDA margin (EBITDA divided by revenues) has hovered in the comfortable but not stellar range of 20-30% for each of the last 8 fiscal years (it was slightly higher before that). Despite this operating stability, its net margins (net profit divided by revenues) have been negative for 6 straight years, coming in at -85% in FY2016-17. These steady losses have resulted in high debt, among other challenges.

Finance-related costs main culprit, but network & regulatory also key

While most of the telecom industry faces declining costs, on a per line or per subscriber basis, TTSL’s recent experience has differed.  Focusing just on three fiscal year periods (FY2010-11, FY2013-14, and FY2016-17), the figure below shows TTSL’s costs on a per subscriber basis, in Rupees per year.

MTN Consulting - TTSL costs.png

Five categories are shown. Three are operating (network operations, regulatory-related opex, and the cost of renting infrastructure under sharing agreements), while two are non-operating (net financing costs, i.e. the cost of servicing its debt, and depreciation & amortization, or “D&A”).

In each area, TTSL has faced challenges in recent years.

TTSL’s increase in finance costs have been staggering, and D&A costs have also grown. What’s not shown are results through June 2017 (i.e. 2Q17), when TTSL’s finance costs worsened, to 69% of revenues (from 24% in 2Q16)

Regulatory costs per line doubled from FY11 to FY17. These costs vary by country and the operator’s business model. License fees and spectrum charges are in general high in India. So, the fact that TTSL’s regulatory costs – while they are high – isn’t an immediate red flag. But it hasn’t helped the company.

Infrastructure sharing operating expense (opex) has also risen as TTSL has relied more on other providers for network coverage. One goal of this sharing is to lower capex requirements in the short-term, and eventually also debt. Given TTSL’s ongoing high finance costs, that doesn’t appear to have been successful.

Finally, network operations opex trends at TTSL are unusual. Most operators globally have experienced declining network operations costs over time, due to new technology, greater scale, and other factors. TTSL, though, saw network operations opex (per line) more than double between FY2011 and FY2017.

What might explain the network operations trend? One possibility: TTSL started relying far more on other providers for its infrastructure. Infra sharing costs as a percent of total opex grew from 9.3% in FY11 to 19.2% in FY17. Increased sharing could have resulted in some unexpected internal network operations costs; that’s a topic for further research. Another likely factor is the decline of TTSL’s mobile subscriber base, and a relative growth in fixed operations. Mobile subscribers often carry lower ARPUs, but the cost of supporting them in the network is also lower. That’s not the case for every company, clearly, but TTSL’s recent experience supports this view.

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Cloud R&D And Network Investment

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A little accounting background: To expense or capitalize R&D

There’s an ongoing debate in accounting circles (yes, they argue) about whether R&D spending should be expensed or capitalized.

Under US GAAP, R&D is expensed. Another set of reporting standards, IFRS, require development-related spending to be capitalized. Once an internal project has met certain criteria, mostly related to technical feasibility, capex rules apply. For instance: let’s say Tencent spends $1M researching new data center cooling systems, all for basic research – no actual design or prototyping. That spending shows up in opex under IFRS. If Tencent then spends another $1M on a small-scale trial based on its research, IFRS says this spending is capitalized. Digital Marketing Agency

Most cloud providers report in US GAAP, but not all. And some that do report US GAAP results, report non-GAAP (e.g. IFRS) results for comparison sake. That may just be to pretty up earnings, in some cases, but there’s also sound reason to push some R&D into capex. If you want companies to spend more R&D, in general, you would let them pay for it over time. Fluctuations in capex are much easier to deal with than operating expenses.

Selling tech to cloud providers

Vendors of all stripes, including those from the telecom world, are eager to sell to cloud providers. They have enormous technology budgets. Much of that is internal, but the external spend share has been climbing due to network investments. In the cloud space there is a fairly direct link between internal R&D and (mostly external) capex.

For telecom service providers (aka telcos), there is also a link. But few telcos have big R&D budgets to rely upon. There are notable exceptions to this, such as NTT, Verizon, AT&T, Telefonica, China Mobile, China Telecom, China Unicom, etc.). But they’re exceptions. Even NTT’s R&D spend is just over 2% of opex, and this is high for a telco. In the cloud space, Priceline –  a travel website with a small cloud – also spends about 2% of opex on R&D. The average spend in cloud is well over 10% of opex, and has been rising.

Moreover, telco R&D spending is weighted towards the “R” part of “R&D”. They tend to lean heavily on vendors for products that are already fully developed.

The R&D-capex link

The chart below hints at why it’s worth watching R&D budgets carefully, if you’re trying to sell tech to a cloud player.

mtnconsulting employee-rd.png

Higher levels of R&D spend, as a share of total opex, suggest higher capex levels on a per-employee basis.

This is just correlation, not causation. But much R&D spend (even when expensed) spills over directly into capex. The lag depends on the project. Some cloud provider R&D is focused on practical near-term issues, such as server design. Artificial intelligence R&D has a longer time horizon.

The cases of Facebook & Microsoft

In many ways Facebook is a standout, even outlier (as in the figure above, top right bubble). Its R&D spend is no exception. Facebook spent 46% of its 2016 opex on R&D, the highest among large cloud players (it was 36% in 2012). The company spends big on product development, innovates quickly, and has high labor costs. It also recorded the highest capital expenditures (capex) per employee in our group, at over $250,000 per employee. And this is nothing new; Facebook’s capex has been high since the start, averaging a telco-level 16% of revenues since 2006.

Microsoft makes for an interesting comparison. This is an older, more established company than Facebook – a tanker in the ocean, which takes some time to change directions. On an absolute level, Microsoft’s total capex last year ($9.1B) was more than double Facebook’s, but Microsoft spends far less capex per employee (about 30%). Given Microsoft’s legacy, though, its cloud commitment has been serious: capex per employee at Microsoft was just over $30K in 2012, it is now just under $80K. On a per revenue basis, capex also rose, from 4% capital intensity in 2012 to 10.6% in 2016. During this growth, Microsoft’s R&D spend was a steady ~20% of opex on R&D. Its R&D emphasis has shifted to cloud though; now, one of three stated R&D goals is to “build the intelligent cloud platform” (June 2017 10K).

Cloud employees don’t work cheap

R&D is conducted by people, still (sorry AI fans), and they require competitive salaries. In the cloud sector, R&D employees tend to be highly skilled and expensive. Apple is a standout in our database. In CY2016 its operating expense per employee (ex-D&A) worked out to just under $1.2 million. Facebook, Alphabet, and Twitter – other household names in pricey Silicon Valley – also recorded high opex, in the $700-900K per employee in CY16. At the other end of the spectrum is Cognizant, an India-based IT services vendor with its own cloud; its annual opex per employee was just over $40K last year.

Capex always includes a healthy share of labor costs, across sectors; telco and cloud are no exception. In a given sector, though, the amount of labor in capex can vary dramatically by company. Labor might be just 20% of total capex for a cloud provider based in Asia, but over 50% for one based in Silicon Valley. If you track capex, then, being able to assess the relative contribution of internal labor costs is important.

More to come on this topic soon.

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Running Converged Networks Is Costly; A View From Thailand

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Mobile operator AIS to consolidate ownership in CS Loxinfo

Thailand’s largest mobile operator AIS announced this month it would spend $79M to buy a 56% stake in CS Loxinfo, an enterprise-focused fixed line operator. AIS is picking up 42% from a Thaicom subsidiary, as well as Singtel’s current 14% stake in CS Loxinfo.

The companies involved in this transaction already have ties. AIS’ parent company, Intouch Holdings, also owns 41% of Thaicom. But this deal is not simply a paper transaction. AIS has good reason to expect integration with CS Loxinfo will accelerate its fixed broadband efforts. AIS entered that market in early 2015, and had ~446,000 subs by June 2017, with an ARPU of 600 Baht/month. That’s over double AIS’ reported blended ARPU of 251 Baht for its mobile subscriber base. The company clearly wants to expand from this modest base.

Regulatory climate improving, bit by bit

AIS was launched in 1990. While a private company, it was set up as a “concession” of Thailand’s Telephone Organization of Thailand (TOT), one of Thailand’s two state operators at the time. AIS received a license, while TOT received a share of AIS revenues. This was a not a small exchange (and TOT did not enthusiastically give it up): AIS’ “regulatory fees” amounted to over 30% of total opex from 2007-2015. Concession fees have lowered dramatically since 2Q16 however, pushing regulatory costs to under 8% for AIS over the last 12 months. Other Thai operators have also enjoyed lower regulatory costs under the new regime, but AIS’ drop is significant.

The operator has other challenges, though.

Converging mobile & fixed

AIS was mobile only from the start. Like many operators only selling mobile services, AIS also built its own fiber backbone. During the last decade, this network’s reach spread further into cities, using both leased capacity and dark fiber. With the move to 4G mobile, the economic logic of AIS owning its own metro fiber resources has become stronger. (AIS is not the only one to have noticed this). Having some base of metro fiber surely helped AIS with its initial broadband launch in 2015. Scaling it has been costly though.

High network operating expenses

From 2007-13 or so, reported network operations expenses at AIS stayed in a fairly tight range: between 150-200 Baht per customer, per year. Expressed as a percent of total opex, network opex ranged from 5-10% in that same timeframe.  By both metrics, network opex began to climb in 2015, dramatically. Over the last 12 months (3Q16-2Q17), it reached just under 500 Baht per customer, per year (figure).

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A primary reason for this shift is AIS struggling to manage the costs of its fixed broadband rollout, as many operators have. Prep for this rollout started in 2013-4. Once the service was available, the cost of on-site customer installs was likely higher than expected. Or simply high, period: the problem AIS ran into is not unique, and they likely expected it.

Truckrolls are costly everywhere

Thailand has loads of attractions, but a first-class wireline infrastructure is not one of them. State-run fixed operators, antiquated regulations, a challenging construction environment – there are many factors behind this. One result is a chaotic web of wiring, strung along nearly every utility pole in the country.

This is what AIS network engineers are now dealing with daily, as they extend fiber nodes and install service at customer premises. For a company used to dealing with thousands of base stations, not millions of customer premises, this is costly & time-consuming work.

CS Loxinfo has itself been providing fixed services in Thailand, for over 2 decades. Its reach is not vast, but Thailand’s fixed market has a small number of mostly small players – and CS Loxinfo is well known. Mostly for its leased line business, as these are still big in Thailand; CS has just under 6,000 leased lines in service. Also under its “ICT” business line, CS Loxinfo offers a range of data center services, and reports racks in service (554 as of June)

Network cost pressures lurk behind many mergers

Most mergers have many drivers, some tied to cost savings, others to expanding market opportunities, etc. The AIS-Loxinfo deal is no different; lowering network costs is one of many goals.

AIS has been #1 in Thailand’s mobile market for many years, but has only started going after fixed. Market acceptance of its “AISFibre” offering has been good, and the company has accelerated initial rollout plans. The company is in a bit of a land grab, though. Teaming up with CS Loxinfo might help accelerate the AIS broadband push without breaking the bank.

 

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Content cost crunch on the horizon?

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Background

For several years, the telecom industry has faced a slow-growth climate. Telcos have adapted, cutting short-term costs as they position for longer-term cost reduction with efforts virtualization & software-defined networks. Most telco execs seem relatively confident that network costs will get in line, eventually. They seem more ambivalent about content.

Content costs keep on rising

Content is important to most big telcos’ growth prospects, and a central reason why cloud providers keep growing. But content is also expensive – both to buy and support in the network.

The biggest telcos have content budgets in the billions. While not many telcos report content costs, BT reports spending over $900M on content (“programme rights charges”) in 2016, for its base of 1.7 million subscribers. Established cable providers, even those who own production studios, have it just as bad. Comcast spent $11.6B in 2016 to purchase programming for its 22.5M video subscribers. That works out to over $500 per subscriber, in the same costly range as BT.

The related network investment to support this content is also hefty. Getting ARPU high and keeping churn low is essential for video platforms to pay off, and you don’t do that with choppy service.

Content also has some “soft” challenges. Most technology deployed by telcos and cloud providers is global, with little variation in basic design and function across country. Content varies dramatically by culture & language, and the R&D/production process is entirely different than a manufactured hardware product or software package.

Cloud providers serious about the content game

Many cloud providers have invested in their own original programming. Netflix gets most of the attention, but Google, Amazon and others have their own studios. Many also invest in early stage content development, in exchange for ownership rights, favorable licensing terms, and/or revenue sharing. Alibaba, for instance, plans to spend $7B developing content over the 2017-19 period. Another Chinese cloud player, Tencent, has its own “Tencent Pictures” arm, which spent ~$150M financing film projects last year.

M&A is an unproven solution

Telcos seem to be leaning towards acquiring their way out of the problem. At least for AT&T. Its purchase of Time Warner is coming along, and won’t be the last big telco-content merger we see – probably not even the last one in 2017. There are downsides to locking in content, though, when you also want to sell it on the open market. And Comcast, which owns both NBCUniversal and DreamWorks, hasn’t exactly solved the content cost puzzle; programming costs amounted to over 40% of its first half opex.

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Mobile operators & towers: to own or not?

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Over the last few years, the independent tower sector has grown dramatically. Much of the growth has come from asset spin-offs: a mobile operator sells some portion of its towers to a specialist, in exchange for cash and a commitment to lease the towers back. The logic is simple: the telco raises cash, and outsources the nuisance of running a relatively undifferentiated part of its operations. The tower company grows its network, and gets a long-term customer.

China Tower

In the case of China, things are different (once again): the China Tower Company was created by a government-mandated spin-off exercise. No cash exchanged hands, but each of China’s major operators now own a stake in China Tower. This independent company is hoping to use its towers for other services, such as electric car charging stations.  While the government involvement was unique, the deal was premised on the same idea motivating most tower spin-offs: mobile operators don’t need to own their own towers.

Axiata buying towers

That belief is not universal, though. An example of this is Axiata, which has over 320M mobile customers spread across 10 countries. Axiata is buying towers, not selling.

Last month Axiata closed a deal to buy 13,000 towers in Pakistan from PMCL, for nearly $1B. This follows a smaller deal earlier in the summer, the $89M acquisition of Pakistan’s Tanzanite Tower Private Ltd and its 700 towers. Axiata says the two deals make its tower subsidiary, “edotco”, among the world’s top 10 tower owners. More important is Pakistan, where its vast tower holdings make it the leading independent – in a market where tower sharing had struggled until recently.

Small cells & fiber

As telcos pursue a mix of own/rent strategies, the independent tower sector will continue evolving. One driver is the need for small cell coverage. That will likely get more important as 5G gets closer.

There’s a related need to deploy more network intelligence closer to the end user. This need drove an interesting deal earlier this week: European tower player Cellex paid 133M Euros, for just 30 towers, from Dutch provider Alticom. Cellnex explains that the towers position them well for 5G: they’re long-range, supporting 15km radius cells, and are suitable for hosting caching servers for data processing and storage. As 5G networks evolve, we may see tower companies get in the business of operating more of the edge intelligence in the network.

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Quad Play, At What Price

Posted on | by Narola

In the late 1990s, some telcos began wondering if buying cable companies might be a shortcut to deploying fixed broadband. That has happened in many countries, including Japan, Germany, Korea, and Spain. In most cases, a new entrant or second tier provider buys an established cable TV to get a quick foothold in the market.

What has happened less often, for good reason, is that an incumbent telco buys a cable TV provider in the same market.

Argentina regulatory change

Last week, Telecom Argentina shareholders approved TA’s plan to buy local cable TV provider Cablevision. The impetus is a regulatory change allowing more competition between the two sectors.

The government is hopeful that the change will bring new investment. That may come, but as often happens when regulations ease, at first we’re seeing the big providers getting bigger. This response has happened in many countries, not just Argentina. There is extra risk here, given the potential market power of a combined telco/cable network. One offsetting factor: the combined company will have a harder time filling its video pipes, as it loses ties to Grupo Clarin.

The dealmaker

This deal also calls to mind how important individual personalities – the dealmakers – are to bringing companies together. In this case, it was David Martínez Guzmán, who owns major stakes in both TA and Cablevision. His main task was getting buy-in from Grupo Clarin, which owned the 60% of Cablevision not already owned by himself. Bloomberg has called Guzman “one of the most mysterious” billionaires on Wall Street.

(Photo credit: Oliver Pecker)