BT buys EE: The start of many Acquisitions in a UK Telecoms Sector Shake Up
That is a conclusion drawn from looking at the figures of BT’s recently announced acquisition of Britain’s largest mobile operator EE, which is currently owned by Deutsche Telecom and Orange.
The deal is worth a staggering £12.5 billion – more than three times the amount that BT has invested through the last couple of years on offering superfast broadband and sports broadcasting, including TV rights for parts of the Premier League, to its customers.
While the deal is still being finalised by a group of lawyers, who probably have not had much more than a nap since before Christmas, the result for BT is that it with one swoop becomes the UK’s biggest mobile network. This is a combination of Britain’s largest supplier of fixed telephone lines with Britain’s dominant mobile network.
BT appears to be positioning itself into the incipient space of services. BT expects significant synergies in the deal and believes the transaction is the start of the anticipated convergence of fixed line and mobile internet access. We expect more consolidation in the UK’s telecom sector.
It leaves the other UK telecoms scrambling to find a way to offer quad play, and consolidate their positions in the mobile market, where there, according to analysts, will be fewer companies left standing at the end of 2015 than at the beginning.
Crowded quad-play forecast
According to UK analysts, the deal will probably mean that BT will be forced to sell off some radio spectrum, as the combined spectrum of BT and EE exceeds the UK airwaves share cap. Overall, the view is that the deal prepares BT for the future telecoms market.
“From a commercial perspective, the firms are largely complimentary as the UK market moves towards quad-play,” Matt Howett and James Robinson, Analysts at the telecoms research company Ovum said in a set of comments about the deal.
Quad-play holds advantages for both customers and companies. For customers, combining four services into one package saves time and money. Companies offering quad-play gain massive cross-selling opportunities and reduce the amount of time and administration associated with servicing current – and winning new customers.
Quad-play has seen a slower uptake in the UK than in neighbouring countries. However, companies like BSkyB, BT, TalkTalk and Vodafone all look like they are moving towards becoming quad-play suppliers.
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This leads to a crowded market, and there could be significant advantages associated with being a first mover. It should be noted that Virgin Media has offered quad-play for some time, but has been severely restricted by availability-issues. This means that BT will in essence be the first major telecoms in the UK with a quad-play offering.
Consolidating needs wiring
According to analysis by Rethink Research, the deal between BT and EE is indicative of a current need for telecoms across Europe to consolidate their positions in specific markets.
One big reason for this is the capital expenditure associated with installing 4G (LTE Advanced) networks.
“Let’s consider for a second a telco such as Germany’s Deutsche Telekom, which owns T-Mobile assets all over Europe. To install LTE and then rapidly after this to upgrade it to LTE Advanced and to take its installed handset base to each of these standards, and perhaps to add carrier aggregation, is a vast Capex burden. If you also have to fight against Wi-Fi by installing a multitude of small cells, with their numerous backhaul points, it makes it an even bigger capex burden,” a Rethink Research writes.
Cable infrastructure is very attractive to European telecoms, and part of the reason is that it lets you leapfrog some of problems that can be associated with the point mentioned above. Acquiring the infrastructure and turning it into a subsidiary means that you are dealing with one of your own companies when it comes to using part of the infrastructure needed to deploy a 4G network.
There are mainly two ways of combating the increased capex associated with upgrading to 4G. One is selling off operations in one of more of the markets where you are active to another operator and thereby in essence getting rid of the problem. The other is investing in a local fixed-line owner, which you can both use yourself and / or lease to other mobile network operators.
It also enables you to offer quad-play.
M&A’s waiting to happen
In many European countries, there are two businesses that control fixed lines – usually one larger than the other. However, many of those countries have at least three companies that control cellular. This leads to a situation where there will be an increased pressure to merge the two smallest cellular companies, which will then try to buy the smaller fixed line company. All the new entities will be perfectly placed to offer quad-play.
“Where that is not possible, the fixed line player may try to buy the cellco and at some point, if valuations continue to go the way they are going, this will become possible. […] it makes sense for every cellco that is in say six countries as a pure cellco with only converged operation in its home country, to sell off three cellcos where it is least likely to find the right fixed line acquisition and buy two more fixed line players. In other words - move from five pure cellcos plus one converged, to three converged players,” Rethink Research argues.
In the UK, this looks likely to happen for various companies during 2015. BSkyB recently announced that it will sell off 80 percent of its stake in its online gambling business, thereby lading its coffers. It has also reached out to Vodafone, EE and O2 about the possibility of using their networks to offer mobile services.
Vodafone, on the other hand, announced in November of last year that it will launch broadband and TV in the UK during 2015. This comes off the back of its acquisition of Cable & Wireless.
Other UK telecoms players like TalkTalk, O2 and 3 all find themselves at a disadvantage after the BT deal and I believe that will be looking for ways to consolidate their positions through M&As. If they do not, they will very likely find themselves the losers of a very high stakes version of musical chairs.
Jakob Sand is the Leader of the Global TMT M&A team at international accountancy network BDO. BDO provides public accounting, tax and advisory services in more than 140 countries worldwide.
GfK and VMware: Innovating together on hybrid cloud
GfK has been the global leader in data and analytics for more than 85 years, supplying its clients with optimised decision inputs.
In its capacity as a strategic and technical partner, VMware has been walking GfK along its digital transformation path for over a decade.
“We are a demanding and singularly dynamic customer, which is why a close partnership with VMware is integral to the success of everyone involved,” said Joerg Hesselink, Global Head of Infrastructure, GfK IT Services.
Four years ago, the Nuremberg-based researcher expanded its on-premises infrastructure by introducing VMware vRealize Automation. In doing so, it laid a solid foundation, resulting in a self-service hybrid-cloud environment.
By expanding on the basis of VMware Cloud on AWS and VMware Cloud Foundation with vRealize Cloud Management, GfK has given itself a secure infrastructure and reliable operations by efficiently operating processes, policies, people and tools in both private and public cloud environments.
One important step for GfK involved migrating from multiple cloud providers to just a single one. The team chose VMware.
“VMware is the market leader for on-premises virtualisation and hybrid-cloud solutions, so it was only logical to tackle the next project for the future together,” says Hesselink.
Migration to the VMware-based environment was integrated into existing hardware simply and smoothly in April 2020. Going forward, GfK’s new hybrid cloud model will establish a harmonised core system complete with VMware Cloud on AWS, VMware Cloud Foundation with vRealize Cloud Management and a volume rising from an initial 500 VMs to a total of 4,000 VMs.
“We are modernising, protecting and scaling our applications with the world’s leading hybrid cloud solution: VMware Cloud on AWS, following VMware on Google Cloud Platform,” adds Hesselink.
The hybrid cloud-based infrastructure also empowers GfK to respond to new and future projects with astonishing agility: Resources can now be shifted quickly and easily from the private to the public cloud – without modifying the nature of interaction with the environment.
The gfknewron project is a good example – the company’s latest AI-powered product is based exclusively on public cloud technology. The consistency guaranteed by VMware Cloud on AWS eases the burden on both regular staff and the IT team. Better still, since the teams are already familiar with the VMware environment, the learning curve for upskilling is short.
One very important factor for the GfK was that VMware Cloud on AWS constituted an investment in future-proof technology that will stay relevant.
“The new cloud-based infrastructure comprising VMware Cloud on AWS and VMware Cloud Foundation forges a successful link between on-premises and cloud-based solutions,” says Hesselink. “That in turn enables GfK to efficiently develop its own modern applications and solutions.
“In market research, everything is data-driven. So, we need the best technological basis to efficiently process large volumes of data and consistently distill them into logical insights that genuinely benefit the client.
“We transform data and information into actionable knowledge that serves as a sustainable driver of business growth. VMware Cloud on AWS is an investment in a platform that helps us be well prepared for whatever the future may hold.”