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Home - Key
Questions - Fixed Networks: Section
2 - Question 10
Section 2: Questions regarding the
drivers of change in the network layer, Layer II
Question 10: Will there be a massive shakeout in the
global telecoms industry? Who will be the winners and losers?
At the start of the new millenium the new telecoms industry, at a global
level, witnessed two contradictory trends.
On the one hand, there appeared to be a strong tendency towards
consolidation. This was most apparent in the huge number and total value of
mergers and acquisitions. The value of mergers and acquisitions in the global
industry in the year to January 2000 totalled $561 billion, up 48 per cent over
the previous year. The most visible included:
| Telecoms
Mergers and Acquisitions |
| WorldCom's acquisitions of MCI and Sprint, the
second and third largest carriers in the US |
| Vodafone’s acquisition of AirTouch in the
US and Mannesmann of Germany |
| Qwest’s acquisition of the Baby Bell, US
West |
| Olivetti’s acquisition of Telecom
Italia |
| Global Crossing’s acquisition of Frontier
also in the US. |
In 1999 WorldCom’s offer for Sprint was worth $114 billion while
Vodafone-AirTouch’s offer for Mannesmann was valued at $148 billion. These
mergers and acquisitions were largely driven by the rapidly rising stock prices
of the predators, a consequence of the bull markets in the US and Europe in the
closing years of the old millenium, and most of the payment took the form of
the ‘paper’ (shares) of the acquirer. And this was just the tip of
the iceberg. Large numbers of smaller telecoms companies around the world were
doing exactly the same, although on a smaller scale.
However, while these mergers and acquisitions might have seemed to
suggest that successful telecoms operators were beginning to establish a
decisive lead over their rivals in telecoms services markets, thereby driving
them out, the second trend apparently contradicted this inference.
This second trend witnessed, if anything, an increase in the number of
new operators entering the industry. The continuing and possibly increasing
rate of new entry implies that the competitive advantages of the successful
predators (as opposed to their stock market-related advantages) cannot be that
great, for if they were, entry by further new operators would be made
unattractive.
[As far as we know, there are few reliable statistics on the overall
rate of entry by different categories of entrants even in the markets of the
main industrialised countries. The same seems to be true of exits, whether
through merger and acquisition or bankruptcy. If you have anything to
contribute on this issue, please go to Workshop
(Area 1)]
These contradictory trends pose an important puzzle. What is happening
here? Are we witnessing the beginnings of a classical shakeout where the total
number of players in the industry decreases dramatically as a combined result
of merger and acquisition, a sharp fall in new entrants, and a sharp rise in
exits? Or are we witnessing an industry that is becoming more heterogeneous and
segmented with large firms co-existing with smaller, perhaps more specialised,
firms?
Clearly, the two stories discussed in Question 9
have an important bearing on the analysis of what is happening. For an account
of the process of shakeout in other industries such as motor cars and
televisions see the references to S. Klepper in
Key Resources.
If you wish to express your views on questions such as these go to the
Workshop (Area 1). To
compare your visions with those of others go to Vision Check.
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