Samia's blog first appeared in RCRWireless News.
While Latin American markets overall are showing slow regional economic growth, one bright spot is the Latin America telecom landscape, which is emerging as one of the world's fastest-growing markets. Despite an uncertain regulatory environment, Latin America continues to show substantial opportunities, especially in the wireless realm. The growth is brought about by several factors, including:
The demand for faster, far-reaching networks to meet the needs of the growing number of devices and subscriptions is requiring an overhaul of network infrastructure and systems to effectively serve the Latin American market.
Until very recently, monopolies have dominated Latin America's traditional telecom industry. However, new merger and acquisition activity – especially in the large markets of Brazil and Mexico – is creating economies of scale that are allowing merged smaller companies to compete against the established monopoly.
Combining assets and strengths allows merged companies to increase their infrastructures to meet demand, and, as such, they are able to grow their assets even faster. Because of this, they can quickly bring to market first-class products and services to meet the needs of customers who are constantly looking for the best, most cost-effective service with a superior customer experience.
Also in play is the regulatory environment, which is also helping boost M&A activity in the region. In Mexico, for example, the Mexican government has led an overhaul of telecom regulation designed to ease market entry for new companies, with a goal of reducing monopolies and increasing competition.
The wireless and telecom landscape has changed considerably in the past two years, with key mergers and acquisitions in Brazil and Mexico. At the end of 2014, America Movil merged its three Brazilian operations: Claro, Embratel and Net. In addition, Telefonica Brasil (Vivo) merged with Vivendi's Global Village Telecom. Also, a potential merge between Oi and TIM, which is controlled by Telecom Italia, has gained momentum. Brazil is currently in a recession and has seen a sharp decline in its currency. Russian billionaire Mikhail Fridman recently stepped up to inject $4 billion into Oi on the condition it merges with TIM.
In Mexico, the telecom market is also undergoing considerable change. AT&T, for example, has entered the Mexican market, making a strong wireless play with the integration of Iusacell and Nextel. In addition, Axtel and Alestra have undertaken a merger focused on data services, data centers and telecom specialized services. The consolidated company will now have the resources to compete against bigger players in this specialized arena.
M&A is also heating up in other areas of Latin America and the Caribbean, where the potential market growth is still huge, despite a decline in average revenue per user and the growing cost of infrastructure. Companies are eager to develop next-generation mobile services and create a technology-based environment to get an edge, offering more advanced and engaging services at an affordable price.
For example, Cable & Wireless Communication recently acquired Columbus International, completing the merger in March 2015. However, the company also recently announced its board has reached an agreement on the terms of a recommended acquisition for the entire issued and to be issued shared capital of CWC by Liberty Global, a large international cable-TV company with nearly 27 million subscribers. Liberty Global holds most of its assets and operations in Europe, but has growing ambitions in Latin America and the Caribbean. The merger is expected to spur faster growth by providing enhanced services and benefits to customers.
Despite the threat of the economic recession, particularly in Brazil, Latin America's telecom market should continue to see strong growth, especially as investments in 4G/LTE accelerate rapidly throughout the region. Operators are investing – and will need to continue to invest – billions of dollars into high-speed broadband networks to create a solid infrastructure base to face the demand of market acceleration.
Similar to what has happened in the European market over the past few years, Latin America operators are facing numerous challenges in the M&A process. The process can be complicated, requiring a well-thought-out strategic plan that includes organizational dynamics and cultural integration of human resources. Throughout the process, clear and constant communication is critical to success.
In addition, operators must:
After the companies merge, systems integration of IT systems and networks is key. Overlaps need to be identified, however, it's critical that operations and services remain stable to provide a strong customer experience through the transition. IT integration is one of the most challenging tasks because disparate legacy systems, fragmented architecture and non-standard processes or proprietary requirements become apparent between the assets of the merging companies. Operators must develop a transformation strategy plan within the overall merger roadmap. For example, in Mexico, AT&T is making considerable investments and focusing on the integration and upgrade of the two companies' IT and network systems being merged.
While cost and capital synergies need to be carefully planned and implemented, operators also need to approach the merger with a "customer-centric" mindset, taking the customer-facing domains into consideration in order to minimize customer impact. This will help them avoid problems that can cause churn in the transformation process, and allow them to keep existing customers happy while attracting new ones. Communication is key, so a strong marketing plan should also be part of the M&A strategic plan.
M&As in the telecom and wireless industries will continue to accelerate market growth in Latin America, and they are needed to increase scale and capabilities, while enhancing customer experience. However, the region's success will depend on effective planning and integration strategies, and overcoming the complexity and challenges of bringing together two disparate entities.
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