Investments by Telcos in Asia-Pacific · acquirers in Japan, Australia, the Philippines, Singapore,...
Transcript of Investments by Telcos in Asia-Pacific · acquirers in Japan, Australia, the Philippines, Singapore,...
Investments by Telcos in Asia-Pacific
A Hive of Activity
September 2016
2
Contents
Section Slide Number
Executive Summary 3
Merger & Acquisitions: Some Basics 5
• Drivers and Restraints 6
• Best Practices 8
• Things that Can Go Wrong 9
Investments by Telcos in Asia-Pacific 10
• Investment Deals between April 2014 and September 2016 12
• Heat Map of Asia-Pacific Acquirers in the Past 2.5 years 14
• Key Trends 15
• Telstra’s Investments 18
• Softbank’s Investments 20
• Investment Targets—Profile and Updates 22
Wrap Up 23
The Frost & Sullivan Story 26
3
Return to contents
Executive Summary
4
Source: Frost & Sullivan
Key Findings
1. Consolidation in the telecommunications industry is still ongoing. However, the number as
well as the size of deals have been decreasing over the years.
2. Overall, most investment deals have been struck within Asia-Pacific, with only a few taking
place outside it. The main acquirers in the past 2.5 years have been Telstra and Softbank,
with deal acquirers mostly in Japan and Australia. Of the deals that took place outside Asia-
Pacific, most targeted companies in the United States, followed by Europe.
3. Within Asia-Pacific, India is a top target for investments. This is due to its tremendous
potential for growth and the fact that it is already at a turning point in its development.
Australia is another top destination. Most deals involved a mobile network operator
acquiring a stake in another company to increase its core competence. eCommerce and
content have been identified as key growth areas in Asia-Pacific. There are still some
mergers & acquisitions ongoing between two mobile network operators. The bulk occurred
before April 2014.
4. Vietnam is starting to open up, with 2015 seeing the first acquisition of a foreign
telecommunications operator by a Vietnamese company and the first time an overseas
investor invested in a Vietnamese telecommunications infrastructure company.
5. Fintech is starting to resonate with investors, mainly because digital services are the future.
As digital services are more likely than not to take place on mobile devices, the mobile
network operator has the advantage of an existing relationship.
5
Return to contents
Mergers & Acquisitions: Some Basics
6
Mergers & Acquisitions—Drivers and Restraints
Drivers
1. Potential synergies derived as a result of mergers and acquisitions (M&As) drive M&A activity.
Telecommunication operators increasingly look for synergies, as their services gradually become
utilities and revenue starts to dwindle
a. Through a merger and acquisition deal, telecommunications infrastructure costs are reduced
without limiting network investment. Network sharing is not able to deliver the same quantum of
savings while maintaining control over network and service quality.
b. A combined customer base allows telecommunication operators to reap the benefits of economies
of scale, e.g., reductions of the cost to acquire and retain customers.
2. Ability to acquire core competencies or businesses of the acquired firm as well as enter a new market.
These activities would not ordinarily be immediately possible if not for an M&A deal.
3. Current low valuations coupled with low interest rates and bank willingness to underwrite debt for
acquisitions are also driving mergers and acquisitions throughout the region.
Source: Frost & Sullivan
7
Mergers & Acquisitions—Drivers and Restraints (continued)
Restraints
1. Merger and acquisition transactions tend to work at cross purposes with efforts by local regulators to
increase competition by giving out new licenses.
2. Post-merger consolidation takes time and companies tend to shift focus from market activities to
internal rebuilding.
a. On average, it takes 6–12 months to close the deal and then another year for re-branding, 2 years
to rework the sales and marketing channel, and 3 years to consolidate network and IT.
b. Inability or lack of expertise to manage the complexity in the transitioning of their network and IT
services could lead to the telecommunication operator losing market share.
c. Duplicate infrastructure instead of re-architecting service layers could increase OPEX instead of
reducing it.
Source: Frost & Sullivan
8
Mergers & Acquisitions—Best Practices
Investors look for an outcome with the following features:
1. Increases revenue: Mobile network operators are focused on increasing average revenue per user
(ARPU) not just per user but per household. This can be done by sharing their network infrastructure
and/or adding layers to their services, e.g., through offering health, IoT, and Big Data services in addition
to core services.
2. Allows entry into a new market: As the barriers for entry into the US market are high, an investor’s
options are to enter the market by acquiring an existing operator, buying spectrum in future auctions, or
signing up to be a mobile virtual network operator (MVNO). Purchasing competitors that are well
established in a particular geography gives the acquirer immediate access to that area. Prime targets
typically feature companies with premium customer satisfaction rates, which translates to less post- deal
churn.
3. Acquires a new core competence: Larger operators try to remain competitive by seeking smaller, often
niche companies with proprietary services or technologies. This is also a quick way to increase non-
organic revenue.
4. Builds presence as an investor: For example, Softbank is increasing its stakes in India to build its
presence as an investor in India.
Key considerations include the following:
1. Outcome of due diligence of the target company
2. Legal and political structures as well as risks within the country in which the target company is operating
3. Post-deal synergies derived would constitute more than half the purchase price. The bulk of expected
synergy is usually derived from network and IT. Source: Frost & Sullivan
9
Mergers & Acquisitions—Things that Can Go Wrong
1. Synergies expected did not materialize or it was more difficult/complex than expected, to carry out the
post-deal plan.
2. Differences between shareholders, particularly when it comes to company direction
3. Inability to obtain regulatory approval. Regulatory approval is a key consideration in all M&A deals.
a. It might be easier to obtain approval for the deal if it was conducted overseas. Local deals may be
considered anti-competitive by local regulators.
i. For example, the APT-Ambit merger deal was rejected twice by the Taiwanese regulator NCC in
2015. The regulator deemed the deal a breach of telecom regulations, as sharing of a core
network does not meet the definition of the 4G roaming agreement in place.
ii. Another example is that of the planned merger between Sprint and T-Mobile to turn around
Sprint, which faced local regulatory objections and failed in 2013. This was after Softbank paid
$21.6 billion for a 78% stake in Sprint in 2013. Failing to get regulatory approval, Softbank’s
options were to write off Sprint or overhaul it through an alternate low-cost plan.
b. Where M&A deals have been approved, the local regulator, in some cases, imposes a significant
constraint such as spectrum divestment or network sharing deals.
i. In the case of Far EasTone, NCC imposed 20 conditions on its planned investment in China
Network Systems, including a pledge to invest in digital capacity over 5 years.
ii. In Tanzania, where Viettel invested in 2014, the local law required it as a new
telecommunications operator to list on the exchange.
Source: Frost & Sullivan
10
Return to contents
Investments by Telcos in Asia-Pacific
11
Notes on Deals Studied
1. The definition of an acquisition as stated in Investopedia is “a corporate action in which a
company buys most, if not all, of the target company's ownership stakes to assume control of the
target firm.”
2. This paper includes deals within Asia-Pacific that involved a telecommunications operator as an
acquirer or an acquired company conducted between April 2014 and September 2016. It does not
include deals that increase existing stakes in a company without changing who controls the
company and deals that are pending completion or did not go through during the period under study.
Sources: Investopedia; Frost & Sullivan
12
Investment Deals between April 2014 and September 2016 77% of all deals were struck within APAC; few outside it
s
>10 deals
3<x<10 deals
x<3 deals n = 92
Source: Frost & Sullivan
13
Investment Deals between April 2014 and September 2016 77% of all deals were struck within Asia-Pacific
77% of deals took place in: 1. India
2. Australia
3. New Zealand
4. Indonesia
5. Thailand
6. The Philippines
7. China
>10 deals
3<x<10 deals
x<3 deals n = 71 Source: Frost & Sullivan
14
Heat Map of Asia-Pacific Acquirers in the Past 2.5 Years The main acquirers were Telstra and Softbank from Australia and Japan,
respectively
Active acquirers were:
1. Telstra 11 deals
2. Softbank 10 deals
3. Axiata 8 deals
4. PLDT 7 deals >9 deals
5<x<9 deals Source: Frost & Sullivan
15
Investments by Telcos in APAC—Key Trends
1. Consolidation in the telecommunications industry is still ongoing. However, the number and size of
deals have been decreasing over the years.
2. Overall, the majority, 77% of all deals were struck within APAC; few took place outside it.
3. The main acquirers in Asia-Pacific in the past 2.5 years were Telstra and Softbank. Together they
account for 30% of the deals conducted within Asia-Pacific
a. Apart from Telstra and Softbank, Axiata and PLDT have also been active in the region, snapping
up 21% of the deals. In total, 51% of deals within Asia-Pacific were closed by Telstra, Softbank,
Axiata, and PLDT.
b. While no deals were recorded in Japan itself, both Japan and Australia housed the acquirers of
44% of deals within Asia-Pacific. In total, 86% of the deals within Asia-Pacific were closed by
acquirers in Japan, Australia, the Philippines, Singapore, Malaysia, and Indonesia.
4. 26% of the deals conducted by Asia-Pacific investors involved acquisitions of companies outside Asia-
Pacific.
a. The majority, 62% of the deals, targeted companies in the United States, followed by 29% in
Europe
b. The most active APAC investors in the past 2.5 years are PLDT, followed by Telstra and then by
Softbank.
Source: Frost & Sullivan
16
Investments by Telcos in APAC—Key Trends (continued)
1. Most deals within Asia-Pacific, i.e., 89% of the deals, over the past 2.5 years involved investors from
within Asia-Pacific.
a. Within Asia-Pacific, 75% of deals took place in India, Australia, New Zealand, Indonesia,
Thailand, the Philippines, and China.
b. In India, the main themes by global investors were deals to expand the scope and capabilities of
acquirers in the areas of eCommerce and digital media as well as tower and spectrum sale and
purchases. Approximately 33% of the deals were conducted by investors from outside Asia-
Pacific.
c. Investors inclusive but not limited to Softbank, Singtel, and Taiwan Mobile are confident of India
as an investment target and have invested or are looking to invest in India. Investors
acknowledge that while the competition is intense, the Indian market has tremendous potential to
grow and is already at a turning point in its development. Opportunities abound even at its current
stage.
d. In Australia, almost all deals were domestic, with Telstra accounting for 45% of the deals and
leveraging them to expand its services in key growth areas such as health, enterprise mobility,
Big Data, IoT, and cloud services. A major highlight in 2015 in Australia was the acquisition of
Amcom by Vocus for $650 million, which created the third-largest telecommunications operator
after Telstra and Optus.
2. The remaining 14% of the deals within Asia-Pacific involved investors from outside Asia-Pacific
investing in companies within Asia-Pacific.
a. The investors included European telecommunications operators Vodafone, Telenor, and
Telefónica. Source: Frost & Sullivan
17
Investments by Telcos in APAC—Key Trends (continued)
• Overall, the main focus areas for investors in Asia-Pacific include:
o 53% of the deals involved a deal in which a mobile network operator acquired a stake in another
company to increase its core competence; e.g., Softbank in IoT with the recent acquisition of ARM
Holdings in July 2016
65% of the companies acquired focused on eCommerce, content, and cloud services. Almost
half the deals involved acquisition of an eCommerce or content company, as these expertise
areas are believed to be key growth areas in Asia-Pacific. Acquisition of content facilitates
quad play, which reduces churn for mobile network operators.
Only a handful of deals involved companies offering IoT, Big Data, and fintech.
o 18% of the deals involved a merger between two mobile network operators, while another 7%
involved a merger between two fixed network operators. The bulk of the mergers occurred before
April 2014.
o 15% of the deals involved a deal whereby a fixed network operator acquires a stake in another
company to increase its core competence.
o Few deals involved investments in towers and spectrum; they were recorded mainly in India and
the Philippines.
• There were a few firsts for Vietnam in 2015:
o The first acquisition of a foreign telecommunications operator by a Vietnamese company: Viettel, a
Vietnamese military-run mobile operator, acquired Beeline Cambodia.
o The first time an overseas investor invested in a Vietnamese telecommunications infrastructure
company: TIME dotCom invested in CMC Telecom in Vietnam. Source: Frost & Sullivan
18
Telstra’s Investments Mainly focused on Australian companies and acquisitions to expand health, cloud, video, and
enterprise mobility solutions
s US Investments
2016 Instart Logic
2015 Elemental
2014 Ooyala
-> to boost video
solutions
Australia Investments
2016 MSC Mobility
2015 Anywhere Healthcare
-> to boost healthcare and
enterprise mobility
2016 Kloud, Readify
2015 Panviva
->to expand cloud service
offerings
UK Investments
2015 Dr. Foster
-> to create a
connected health
care system
China and Taiwan
Investments
2016 Qiniu
2015 Gorilla
Technology
-> to boost cloud and
Big Data offerings
Source: Frost & Sullivan
19
Telstra’s Investments (continued) Investments were made through Telstra Ventures
1. Most of Telstra’s deals were focused on Australian companies
2. In the past, its acquisitions targeted investment opportunities in technology companies; e.g., in
eCommerce, eHealth, IoT and fintech.
3. Recent acquisitions aim to expand health, cloud, video, and enterprise mobility solutions throughout
Asia-Pacific, help Telstra increase its coverage of the China market, and drive new business
opportunities.
4. Healthcare acquisitions in 2015 followed Telstra’s launch of the Telstra Health division in Oct. 2014
while enterprise mobility acquisitions help Telstra target the fastest-growing segment with tools that
help its customers drive better business outcomes.
5. Acquisition of cloud companies expands cloud service offerings, such as in professional and managed
services as well as API-based customization and extensions. It would also enhance Telstra’s
consulting capabilities in business technology advisory services.
Source: Frost & Sullivan
20
Softbank’s Investments Mainly focused on the United States and India, with key acquisitions in eCommerce and
transportation app companies
s US Investments
2014 Sprint
2014 Legendary
Entertainment
-> to boost content
offerings
India Investments
2014 Ola, Locon
Solutions, Snapdeal
-> to boost eCommerce
offerings
UK Investments
2016 ARM
-> to expand IoT
offerings China and South Korea
Investments
2015 KuaiDi Dache
2015 Coupang
-> to boost eCommerce
offerings
ASEAN Investments
2014 Tokopedia
2014 Grab
-> to boost eCommerce
offerings
Source: Frost & Sullivan
21
Softbank’s Investments (continued) Investments were made through Softbank Group Corp.
1. 50% of Softbank’s deals were focused on US and Indian companies.
2. In the past, its acquisitions targeted investment opportunities, which led to its major stakes in Internet
and eCommerce companies.
3. Recent acquisitions in Internet companies support disruptive entrepreneurs who share Softbank’s
vision as they further revolutionize eCommerce.
4. Within the past 2.5 years, Softbank has acquired a mix of regional and local transportation apps such
as Grab Taxi operating across Asia-Pacific, Ola in India, and Didi Kuadi in China. Didi Kuadi is Uber’s
keen competitor in China and secured $3 billion in funding through other investors in 2015 after
Softbank acquired a stake in February 2015. Its valuation is 5x that of Ola, at $15 billion.
5. The acquisition of a movie studio will increase the attractiveness of Softbank’s core service: mobile
phone services. The recent acquisition of Legendary East that had signed a multiyear pact in 2015 to
co-produce movies with China Film Co., the largest film distributor in China, is expected to facilitate
Softbank’s quadplay service offerings.
Source: Frost & Sullivan
22
Investment Targets—Profile and Updates
MobiFone
Vietnam
1. Mobifone is a state-owned mobile network operator headquartered in Hanoi. The
Vietnamese government plans to privatize it but was yet to release its plan as of
August 2016.
2. It is the second-largest mobile network operator in Vietnam and has an estimated
brand value of $539 million.
3. Telenor, Comviq, Telstra, and Singtel have since expressed interest to invest in
Mobifone.
PT XL Axiata
Indonesia
1. PT XL Axiata is the second-largest mobile network operator by subscribers,
headquartered in Jakarta.
2. It has an estimated revenue of 21.26 trillion IDR (2015). Earlier, in March 2016, it
sold 2,500 of its broadcast towers to PT Professional Telekomunikasi Indonesia
(Protelindo) for $267.2 million to settle some of its debt.
3. Axiata, which owns 66.4% of PT XL Axiata, is seeking a buyer for 11% of its
shares in PT XL Axiata worth $2.2 billion as of September 2016.
Dialog Axiata Plc.
Sri Lanka
Smart Axiata Co
Cambodia
1. Dialog is the largest mobile network operator in Sri Lanka, headquartered in
Colombo. It has an estimated revenue of $531.2 million (2015).
2. Axiata, which owns 83.3% of Dialog Axiata Plc., is seeking a buyer for 30% of its
shares in Dialog Axiata Plc.
1. Smart is the second-largest mobile network operator in Cambodia, headquartered
in Phnom Penh.
2. Axiata, which owns 95.3% of Smart Axiata Co, is seeking a buyer for 30% of its
shares in Smart Axiata Co. Source: Frost & Sullivan
23
Return to contents
Wrap Up
24
Key Takeaways
1
Industry consolidation will continue until each market is only
addressed by a single network; telecommunications operators
compete only on customer experience. However, for this scenario
to occur and to bear fruit, a supportive regulatory framework needs
to be put in place by the local regulator to address pricing and
SLA.
2
As telecommunications operators evolve into digital businesses, they
are increasingly investing in digital services companies. Alongside this,
these operators are also starting to invest in fintech, such as to offer
mobile wallets to support digital commerce activities offered to
businesses, as the operators have the advantage of an existing
relationship. This trend rides on eCommerce as a key growth area in
Asia-Pacific.
Source: Frost & Sullivan
25
Frost & Sullivan is not responsible for incorrect information supplied to us by manufacturers
or users. Quantitative market information is based primarily on interviews and therefore is
subject to fluctuation. Frost & Sullivan research services are limited publications containing
valuable market information provided to a select group of customers. Our customers
acknowledge, when ordering or downloading, that Frost & Sullivan research services are
for customers’ internal use and not for general publication or disclosure to third parties. No
part of this research service may be given, lent, resold or disclosed to noncustomers
without written permission. Furthermore, no part may be reproduced, stored in a retrieval
system, or transmitted in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise, without the permission of the publisher.
For information regarding permission, write to:
Frost & Sullivan
331 E. Evelyn Ave. Suite 100
Mountain View, CA 94041
© 2015 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan.
No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.
Legal Disclaimer
26
Return to contents
The Frost & Sullivan Story
The Journey to Visionary Innovation
27
The Frost & Sullivan Story
28
Value Proposition: Future of Your Company & Career Our 4 Services Drive Each Level of Relative Client Value
29
Global Perspective 40+ Offices Monitoring for Opportunities and Challenges
30
Industry Convergence Comprehensive Industry Coverage Sparks Innovation Opportunities
Automotive &
Transportation
Aerospace & Defense Measurement &
Instrumentation
Information &
Communication Technologies
Healthcare Environment & Building
Technologies
Energy & Power
Systems
Chemicals, Materials
& Food
Electronics &
Security
Industrial Automation
& Process Control
Automotive
Transportation & Logistics
Consumer
Technologies
Minerals & Mining
31
360º Research Perspective Integration of 7 Research Methodologies Provides Visionary Perspective
32
Implementation Excellence Leveraging Career Best Practices to Maximize Impact
33
Our Blue Ocean Strategy Collaboration, Research and Vision Sparks Innovation