Mobile consolidation: is three the magic number?

Consolidation has been the focus of the mobile industry for some time, but there are changes in what drives it. The new, accelerating trend is the creation of three quad-play operators in most national markets.

Organic growth of the subscriber base is no longer the way to boost profits in the many markets approaching saturation point. Growth by acquisition of smaller mobile rivals is also becoming less viable — particularly as in most countries around the world, often following a period of mergers and acquisitions, the market has stabilised at three players or at least at three dominant players.

That is not to say three is now the new magic number. In North Korea there is a single nationwide mobile operator, whereas in India there are 12 competing for a share of the mobile pie. In Africa most countries now have three operators but Swaziland has just one, Togo two and Uganda seven. In Kenya, four has just become three with the sale of Essar Telecom’s local subsidiary.

There are also some notable exceptions to the rule of three in some of the world’s major markets. After looking for a while as though the round of M&A in the US might end in three national operators, for now at least there are still four.

Recent takeovers in Germany and Austria, which will shrink these markets to the European-standard three, have been approved, but Russia, Spain the UK, France, Italy, Sweden, Denmark and Ireland still have four. However Tele2 in Russia, Bouygues in France and Yoigo in Spain are all considered to be likely targets for takeover bids. And the fourth operator in each of the other five countries is Hutchison’s 3, which itself could be a takeover target (particularly in view of its mobile-only focus).

Unlike most of its Latin American neighbours, which have three operators, Brazil has a “big four.” But one of the biggest, second-ranked TIM Brasil, is now the subject of a $13 billion joint takeover bid from its three rivals. Just as significant however, if not more so in terms of the international trend, is the talks now ongoing between Spain’s Telefonica and France’s Vivendi for the sale of the latter’s $10 bn Brazilian broadband, pay-TV and fixed-line telephony services unit GVT to Telefonica’s Vivo.

This move to quad-play offerings, or at least to tri-play plus add-on content services, has already happened in Japan, South Korea, China, Australia and other key Asia Pacific markets and is gathering momentum elsewhere.

The latest instance was in France where landline, broadband and cable TV company Numericable Group got permission to buy France’s second-largest mobile operator, SFR, from Vivendi in a $23 bn deal. Vodafone is moving away from its mobile-only roots towards bundled offerings, and to this end has recently acquired Greek fixed-line operator Hellas Online for $100 million and Spain’s fixed-line and pay-TV operator Ono for $10 bn.

As well as the bottom-line benefits of bundled offerings, access to extra fibre gives mobile operators backhaul cost savings.