I see various mergers and acquisitions in the communications service provider space eventually bringing us to just four integrated carriers in the U.S.
Since earlier this year, it feels like we get a new merger report each day as big players in the U.S. look to expand market share and diversify. Right now, we’re seeing a constantly evolving story around Sprint and its interest in merging with players like Charter Communications and T-Mobile US. While moves similar to these may seem routine on the surface, they have a lot of implications for the landscape of the industry, and could lead to significant changes.
That’s a good thing for consumers and enterprise customers.
It’s too early to make a public prediction about who these four integrated carriers will finally be, but I’m confident this is our future reality. Here are some of the key reasons why:
- Aggressive M&A around content
With the current political climate in the U.S., communications providers have a better chance than ever to make aggressive moves in the market, and they know this. In fact, key executives are already publicly stating how they are open to merging with other consumer-facing companies to offer services that will fill gaps in their current portfolios. The primary example here is AT&T’s pending $85 billion purchase of Time Warner.
Another example of this was AT&T shaking up the industry by purchasing DirecTV and offering wireless TV to keep up with evolving consumer expectations for content everywhere. This also created advertising inventory space so AT&T can monetize from basically any screen a customer is using. I expect to see this more, as TV becomes a key expansion area for telecom operators as they move to new bundle strategies.
High interest in wireless assets
On the flip side is Comcast’s initial move to offer their customers wireless service through Verizon’s airwaves, making it the first major U.S. cable provider to do so. Charter Communications, separate from recent Sprint reports, publically stated they also plan to offer a wireless service next year and I don’t see this momentum slowing down. Cable providers moving into wireless is absolutely a move to reduce churn and make a customer more likely to “stick” by getting all their services from one provider.
OTT content consumption
In addition to this, let’s not overlook one of the most interesting trends happening in the industry right now: the desire to purchase content creators as well. There is a story almost every month about someone’s interest in purchasing the likes of Disney and their wide-IP, and for good reason; the way we’re traditionally watching TV is changing and content creators are king.
Can you see where this is going?
The modern goal of communications providers is to be an all-encompassing provider of digital services – wireless, TV and content via multi-play bundles. Ovum forecasts that 25% of bundled subscriptions will be non-traditional bundles by 2021, and now is the time for this disruption to occur. There is a reason why the communications industry is a primary driver of GDP over the last 50 years, so of course everyone wants more of the pie and to play in the areas they are lacking.
The consumer and enterprise customer benefits are there as well. When this is done correctly, customers would see better value, integrated digital content, one monthly bill and customer service location, and they could easily add/remove features in one online portal. Some may argue that only four integrated carriers would limit competition, but as we’re seeing in the wireless space right now, only a few key leaders creates immense rivalry. With telecom providers moving into the content space, and cable providers moving toward wireless offerings, regional restrictions may soon be a thing of the past, leading to a similar competitive atmosphere for content.
On the business argument side, I believe smaller carriers want to be bought by larger ones in an effort to be part of a larger overall footprint, offset debts or turnaround subscriber losses.
While it’s too early to make a public prediction on the winners here, I do expect the four integrated carriers to be a mix of both leading cable/broadband and wireless carriers we see today. The leaders will be the ones who make big moves based on what they expect customer and enterprise demands to be years down the line.
Providers can and will buy up the best in breed to build out their digital offering portfolios one deal at a time, and you can bet now is one of the best times to do this.
