It's been a while since I have blogged but hopefully over the next few days I'll start to establish a better routine.
Expect 2018 to see a number of Mobile Networks doing proof of concept trials of 5G, we are seeing the first in Europe with DT is already doing so, more will follow. Physical Devices will start to become available in the last quarter of the year once chipsets move into preproduction phase.
The focus for IoT should move away from Consumer fantasy solutions to more of a focus on Enterprise offerings because significant elements of integration will be required if the sector is to be more than just basic plug and play applications. IoT needs to evolve into a major market because a significant amount of planning around its demand for capacity has been used to justify the need for 5G at a time when 4G has yet to be completely deployed. Without being able to show new markets Mobile Networks are not likely to be able to raise the finances needed to build 5G out.
I expect to see more criticism of the negative effects of Smartphones on our everyday lives as people start to realise that the App ecosystems rather than helping is hurting. I left Facebook over a year ago, when I upgraded my phone in Summer 2016 I removed the Facebook App that was preinstalled. I do not have notifications enabled on by phone for anything other than email, and then it is only my work account. It is not mobile phones that are doing the damage it is what you allow on them and how you then live with that software. But just as it is usual the child of someone who works in technology who is last to get a phone at school it is those in the sector who are least likely to use excessively the technology.
Running a Telecoms Network is about a lot more than just deal making you just have to look at the problems of those who jumped on the M&A bus and crashed into a pile of debt as the consolidation boom they embarked on failed to deliver the riches from scaling up. As you layer generation upon generation of technology the issue becomes more complex not just in terms of Infrastructure but also Customer expectations and demand. Before the iPhone we saw a broad spectrum of handset designs enable by the fact that manufacturing processes were controlled by Equipment makers rather than outsourced. Today Smartphones are all the say form factor and operate one of two software systems this means that the generation that has known nothing but smartphones has a set of expectation and behaviours vastly different from those whom started out with phones that were primarily phones.
So how might things be made better? Can it be done without the need to Regulate and litigate? Are Investors happy to allocate capital at a rate that allows development? I will try and post a few thoughts on how to go forward without breaking confidentiality clauses signed with clients of the next few weeks.
Showing posts with label M&A. Show all posts
Showing posts with label M&A. Show all posts
Friday, January 26, 2018
Thursday, February 05, 2015
So BT have finalised a deal for EE
We woke this morning to the news that BT had agreed terms to acquire EE. I have to say that if feels that I am in some strange fantasy world rather than one that understands the massive risk such a deal is.
Those that make a living as public analysts have all been very quick to jump on the bandwagon that this is wonderful news. I feel somewhat differently.
If I were a shareholder in Orange I have to ask just how owning shares in BT is going to fund purchases in France aimed at consolidation? It is also difficult to see how DT can say it got a fair price for finally exiting the UK mobile market (they bought One-2-One for £8.4bn).
But lets look at just what BT have bought and how they are unlikely to be able to execute an strategy that offers a return on the investment.
BT back in the retail game.
Part of the "prize" for BT is the fact that they will take over the stores of EE and thus have a presence on the High Street through which they can upsell other services. BT used to have retail stores that they closed because they could not make them work. I do not think that they have significantly changed so that they can offer a presence where you can talk people into Quad play services. If they can sell Quad play then it will be on the basis of discounting rather than quality.
What can BT do will all the 4G Spectrum?
In the 4G auctions BT purchased spectrum that it was going to used for fixed mobile services and now has spectrum refarmed and purchase by EE. The regulator will have demands about forfeiture of some of the Spectrum. Whilst divisions other than BT Retail will have requirements for Mobile Spectrum of its own, can these be met by the new holding?
BT's ability to invest in Fibre
If BT can find the money to buy a Mobile asset then why can't it find the money to better roll out Fibre Broadband, is likely to be the simplistic view of politicians. Thus demand that BT deals speedily in building out Fibre to the 50% of households not covered by Virgin's footprint will increase. Alongside the calls for faster upgrades to the Fibre estate will be demands that they wholesale access prices fall.
Talent blackhole when it comes to Mobile
BT does not have the Executive experience required to manage a Mobile Operation and the Management at EE is unlikely to want to work for BT. This means that once the deal closes they will face a mass exit of know how just at a time that they need to up skill. If they wish to stop that then they will be over paying, if they don't then they will discover just how complex managing the build and maintenance of a Mobile Network is.
Everything just got a lot more expensive for BT
Anyone with something to sell to BT has just seen that they are happy to pay top prices. So in order to close any significant move they will discover that the price has just risen by 15-20%. If they can spend £12.5bn for EE they must have the money for ...
BT Executives are in my experience very far from reality. They might feel that they are offering the consumer an enhanced product range that they should be happy to pay for. The reality is that for the last fifteen years telecommunications has been a commodity that the user demands at an ever decreasing price. Look at the UK retail space and you see a blood bath, experienced hands like Tesco, M&S and Topshop are hurting an BT thinks that they can be successful. BT adverts for Broadband services may win awards and get people talking but they do not seem to get people signing up for service. If you pay out £12.5bn how long can you offer BT Sport free of charge to your Consumers? What will the price be and how many will pay it?
Rather than telling the CEO and Chairman that they have struck an excellent deal if I would a significant shareholder I would be selling off my holding as it is unlikely that I will see an increase in dividends from helping Germany and France exit the UK Mobile market.
Those that make a living as public analysts have all been very quick to jump on the bandwagon that this is wonderful news. I feel somewhat differently.
If I were a shareholder in Orange I have to ask just how owning shares in BT is going to fund purchases in France aimed at consolidation? It is also difficult to see how DT can say it got a fair price for finally exiting the UK mobile market (they bought One-2-One for £8.4bn).
But lets look at just what BT have bought and how they are unlikely to be able to execute an strategy that offers a return on the investment.
BT back in the retail game.
Part of the "prize" for BT is the fact that they will take over the stores of EE and thus have a presence on the High Street through which they can upsell other services. BT used to have retail stores that they closed because they could not make them work. I do not think that they have significantly changed so that they can offer a presence where you can talk people into Quad play services. If they can sell Quad play then it will be on the basis of discounting rather than quality.
What can BT do will all the 4G Spectrum?
In the 4G auctions BT purchased spectrum that it was going to used for fixed mobile services and now has spectrum refarmed and purchase by EE. The regulator will have demands about forfeiture of some of the Spectrum. Whilst divisions other than BT Retail will have requirements for Mobile Spectrum of its own, can these be met by the new holding?
BT's ability to invest in Fibre
If BT can find the money to buy a Mobile asset then why can't it find the money to better roll out Fibre Broadband, is likely to be the simplistic view of politicians. Thus demand that BT deals speedily in building out Fibre to the 50% of households not covered by Virgin's footprint will increase. Alongside the calls for faster upgrades to the Fibre estate will be demands that they wholesale access prices fall.
Talent blackhole when it comes to Mobile
BT does not have the Executive experience required to manage a Mobile Operation and the Management at EE is unlikely to want to work for BT. This means that once the deal closes they will face a mass exit of know how just at a time that they need to up skill. If they wish to stop that then they will be over paying, if they don't then they will discover just how complex managing the build and maintenance of a Mobile Network is.
Everything just got a lot more expensive for BT
Anyone with something to sell to BT has just seen that they are happy to pay top prices. So in order to close any significant move they will discover that the price has just risen by 15-20%. If they can spend £12.5bn for EE they must have the money for ...
BT Executives are in my experience very far from reality. They might feel that they are offering the consumer an enhanced product range that they should be happy to pay for. The reality is that for the last fifteen years telecommunications has been a commodity that the user demands at an ever decreasing price. Look at the UK retail space and you see a blood bath, experienced hands like Tesco, M&S and Topshop are hurting an BT thinks that they can be successful. BT adverts for Broadband services may win awards and get people talking but they do not seem to get people signing up for service. If you pay out £12.5bn how long can you offer BT Sport free of charge to your Consumers? What will the price be and how many will pay it?
Rather than telling the CEO and Chairman that they have struck an excellent deal if I would a significant shareholder I would be selling off my holding as it is unlikely that I will see an increase in dividends from helping Germany and France exit the UK Mobile market.
Sunday, December 21, 2014
More thoughts on the BT purchase of EE
Reading today's Telegraph I start to see analysis that BT returning to the Mobile Market might not be a great idea. Whilst this is a start I don't think that it highlights the problems such a deal presents to BT.
The investment that in buying EE BT is making is 3 times that they have made in Superfast Broadband AND Sport. This is just the table stakes, having joined the Mobile poker table they will have to double down if they are to fulfil the terms of the 4G Spectrum Licience. This is at a time when the sector is shrinking rather than growing.
The way that EE was formed has seen the culture of the business very much free of Civil Servant style management, something very different to BT. Thus in buying a Mobile Network will the Executives be brave and allow it to stand alone, would they be allowed to by the Regulators? If they place the mobile unit as a subsidiary of BT Retail I predict that many of the members of staff that make the business work will exit in frustration if they can be persuaded to join in the first place. Most are likely to seek redundancy before the transaction closes.
In Gavin Patterson BT have a CEO who is all about Marketing with little understanding of Engineering. This could well be a problem when it comes to developing products that utilise the new Mobile Asset. At this moment in time BT are building three 4G core networks for use by customers in the UK thanks to the structure placed upon it by Regulation. These networks will be used to deliver different products none of which have a proven demand. The last time BT owned both fixed and mobile assets it saw potential for converged mobile phones and invested heavily in projects such as the BT Bluephone which were commercial flops. I fear that they did not learn for such follies and will once again squander millions that could be spent upgrading fixed networks or boosting the income of sportsmen and women.
The investment that in buying EE BT is making is 3 times that they have made in Superfast Broadband AND Sport. This is just the table stakes, having joined the Mobile poker table they will have to double down if they are to fulfil the terms of the 4G Spectrum Licience. This is at a time when the sector is shrinking rather than growing.
The way that EE was formed has seen the culture of the business very much free of Civil Servant style management, something very different to BT. Thus in buying a Mobile Network will the Executives be brave and allow it to stand alone, would they be allowed to by the Regulators? If they place the mobile unit as a subsidiary of BT Retail I predict that many of the members of staff that make the business work will exit in frustration if they can be persuaded to join in the first place. Most are likely to seek redundancy before the transaction closes.
In Gavin Patterson BT have a CEO who is all about Marketing with little understanding of Engineering. This could well be a problem when it comes to developing products that utilise the new Mobile Asset. At this moment in time BT are building three 4G core networks for use by customers in the UK thanks to the structure placed upon it by Regulation. These networks will be used to deliver different products none of which have a proven demand. The last time BT owned both fixed and mobile assets it saw potential for converged mobile phones and invested heavily in projects such as the BT Bluephone which were commercial flops. I fear that they did not learn for such follies and will once again squander millions that could be spent upgrading fixed networks or boosting the income of sportsmen and women.
Monday, December 15, 2014
BT buying a mobile network
Yesterday The Sunday Times ran another story on BT buying a Mobile Network for £10bn. The story outlined the options faced by the CEO and his team without asking the questions a shareholder might want answered.
If the Mobile sector offers such riches to BT why are the two largest Networks prepared to pull up sticks and exit the market?
How do the Customers of EE or O2 overlap with those of BT and are they likely to remain given a change of ownership?
If BT were to buy either Network what will be the response of OFCOM when it comes to regulation?
After 14 years not managing Mobile Infrastructure Assets does BT have the Management expertise needed to make a return on the Investment given the vast changes over that period?
On the basis of just these questions then the rational response is thanks for the opportunity but I think BT is better served NOT doing the deal. Those likely to benefit from any deal in the short term will be Investment Bankers, Lawyers and Accountants who will be able to charge large fees for the transaction. In the medium term the beneficiaries are likely to be the rivals of BT.
If the deal were to work for BT it would have to be able to convince the Consumer that buying all your connectivity requirements from a single provider is worth paying a premium for rather than a discount. It would need to hire Executives capable of building and running Mobile Networks and then given them the space and power to do so rather than hamstringing them as a subsidiary of an Operating Unit. Whilst spending vast sums on Marketing and Engineering in the Mobile Business it would need to also do so in the Fixed Business or face Investigation and Sanctions by OFCOM and Politicians. These challenges are greater than those faced by the Board in the Dot.com era when failure saw the sale of Cellnet.
If the Mobile sector offers such riches to BT why are the two largest Networks prepared to pull up sticks and exit the market?
How do the Customers of EE or O2 overlap with those of BT and are they likely to remain given a change of ownership?
If BT were to buy either Network what will be the response of OFCOM when it comes to regulation?
After 14 years not managing Mobile Infrastructure Assets does BT have the Management expertise needed to make a return on the Investment given the vast changes over that period?
On the basis of just these questions then the rational response is thanks for the opportunity but I think BT is better served NOT doing the deal. Those likely to benefit from any deal in the short term will be Investment Bankers, Lawyers and Accountants who will be able to charge large fees for the transaction. In the medium term the beneficiaries are likely to be the rivals of BT.
If the deal were to work for BT it would have to be able to convince the Consumer that buying all your connectivity requirements from a single provider is worth paying a premium for rather than a discount. It would need to hire Executives capable of building and running Mobile Networks and then given them the space and power to do so rather than hamstringing them as a subsidiary of an Operating Unit. Whilst spending vast sums on Marketing and Engineering in the Mobile Business it would need to also do so in the Fixed Business or face Investigation and Sanctions by OFCOM and Politicians. These challenges are greater than those faced by the Board in the Dot.com era when failure saw the sale of Cellnet.
Thursday, June 12, 2014
European M&A rumours....
Here is the text from an email I got today....
Posted: 12 Jun 2014 02:35 AM PDT
Does anybody else find it a bit odd that today's media coverage of the failed merger talks between Orange and Bouygues Telecom pretty much all fail to mention the bigger industry tale that has been rattling around European markets all week - the talk of a EURO 90 billion merger between Deutsche Telekom and Orange.
I know this one has been knocking around for the last few days and a bit of an 'old chestnut' of a deal story. But this time I think there may be something in it, so it's worthwhile a mention on Betaville this morning.
Indeed, Gary Parkinson, the market reporter over at the The Times, tweeted on Monday he had been hearing rumours Deutsche Telekom is preparing a takeover bid for France's Orange. And on Tuesday Bryce Elder and Paul Murphy over FT Alphaville said on their execellent Markets Live show they have heard similar things but people close the situation have been playing the gossip down.
Well, I hear that several investment banks have lined up on either side of this potential EURO 90 billion combination, adding credence to the scuttlebutt.
Deutsche Bank, Bank of American Merrill Lynch and Citigroup are said to be working with Deutsche Telekom on the possible merger. Orange is believed to be working with Credit Suisse, Lazard and Credit Agricole.
Rothschild is likely to advise the French government, which owns 27pc of Orange, on any merger deal although the venerable corporate adviser was mandated to work with Bouygues Telecom on its EURO 6 billion sale talks to Orange, whose shares fell yesterday about 4pc.
Anyway, that's the extra detail I have managed to glean from my sources. The idea of Deutsche Telekom and Orange combining has been around for several years (the two companies have already merged their British businesses into EE) but my sources tell me things are now "hotting up".
In part, this is because Deutsche Telekom is close to securing a deal to sell its 67pc stake in T-Mobile USA to Sprint, which is controlled by Japan's Softbank. Here is a link to last week's report on the matter: http://uk.reuters.com/
Some of my sources reckon Deutsche Telekom will secure an upfront cash break fee payment of over EURO 1 billion from Sprint as it will take a long time for the US regulators to clear the sale.
Any deal between Deutsche Telekom and Orange is likely to see the German company pay for the French business using its own stock and a little bit of cash, claimed one source.
Bankers also tell me there is a political will to see both Deutsche Telekom and Orange come together to create a European telecoms champion that will be able to compete on a global stage. The German government owns 14.5pc of Deutsche Telekom and France has a 27pc stake in Orange.
I have to admit, though, I don't know whether this deal is just a glint in Deutsche Telekom's eye or whether talks - albeit informal, early or late stage - are "live". Market participants can make their own mind up what price Deutsche Telekom will/would have to pay for Orange
Deutsche Telekom and Orange both declined to comment although people close to the latter said there is "no project" being worked on.
I know this one has been knocking around for the last few days and a bit of an 'old chestnut' of a deal story. But this time I think there may be something in it, so it's worthwhile a mention on Betaville this morning.
Indeed, Gary Parkinson, the market reporter over at the The Times, tweeted on Monday he had been hearing rumours Deutsche Telekom is preparing a takeover bid for France's Orange. And on Tuesday Bryce Elder and Paul Murphy over FT Alphaville said on their execellent Markets Live show they have heard similar things but people close the situation have been playing the gossip down.
Well, I hear that several investment banks have lined up on either side of this potential EURO 90 billion combination, adding credence to the scuttlebutt.
Deutsche Bank, Bank of American Merrill Lynch and Citigroup are said to be working with Deutsche Telekom on the possible merger. Orange is believed to be working with Credit Suisse, Lazard and Credit Agricole.
Rothschild is likely to advise the French government, which owns 27pc of Orange, on any merger deal although the venerable corporate adviser was mandated to work with Bouygues Telecom on its EURO 6 billion sale talks to Orange, whose shares fell yesterday about 4pc.
Anyway, that's the extra detail I have managed to glean from my sources. The idea of Deutsche Telekom and Orange combining has been around for several years (the two companies have already merged their British businesses into EE) but my sources tell me things are now "hotting up".
In part, this is because Deutsche Telekom is close to securing a deal to sell its 67pc stake in T-Mobile USA to Sprint, which is controlled by Japan's Softbank. Here is a link to last week's report on the matter: http://uk.reuters.com/
Some of my sources reckon Deutsche Telekom will secure an upfront cash break fee payment of over EURO 1 billion from Sprint as it will take a long time for the US regulators to clear the sale.
Any deal between Deutsche Telekom and Orange is likely to see the German company pay for the French business using its own stock and a little bit of cash, claimed one source.
Bankers also tell me there is a political will to see both Deutsche Telekom and Orange come together to create a European telecoms champion that will be able to compete on a global stage. The German government owns 14.5pc of Deutsche Telekom and France has a 27pc stake in Orange.
I have to admit, though, I don't know whether this deal is just a glint in Deutsche Telekom's eye or whether talks - albeit informal, early or late stage - are "live". Market participants can make their own mind up what price Deutsche Telekom will/would have to pay for Orange
Deutsche Telekom and Orange both declined to comment although people close to the latter said there is "no project" being worked on.
The sender is a journalist.
I think that it is highly unlikely that any such deal will happen as the French are unlikely to accept the sale of Orange to the Germans. If the deal was to happen I think that the EU regulators would have a serious look at what measures would be needed to make sure that wholesale access were fair and open to all as well as price regulations. I cannot see where the New Co can make savings aimed at making the deal work medium to long term.
Whilst many Bankers are running models for consolidation I think that politics and personalities will make any such transactions limited to smaller markets or lesser players rather than former State Operators taking one another out. That said I would welcome either DT or Orange buying BT.
I think that it is highly unlikely that any such deal will happen as the French are unlikely to accept the sale of Orange to the Germans. If the deal was to happen I think that the EU regulators would have a serious look at what measures would be needed to make sure that wholesale access were fair and open to all as well as price regulations. I cannot see where the New Co can make savings aimed at making the deal work medium to long term.
Whilst many Bankers are running models for consolidation I think that politics and personalities will make any such transactions limited to smaller markets or lesser players rather than former State Operators taking one another out. That said I would welcome either DT or Orange buying BT.
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