For the past two or three years many, if not most, telcos and service providers have been in a state of suspended animation. In the Arctic winter that has been laying across telco-land, aiming just to survive by shutting down CAPEX and reducing head-counts has been the name of the game for a lot of industry players, large and small.

Now, after several false dawns, something is once again stirring on the tundra. Whisper it, but telcos are starting to buy stuff other than OPEX-shrinking systems and equipment. They're even starting to get back in the business of acquiring other businesses.

The obvious, overriding and uniting motivation for buying up or into businesses is that the telco managements can detect a 'pot of gold' at the end of the 'acquisition rainbow'.

Another of the six grounds for acquisition is what might be termed 'the Emperor has no clothes' dynamic (perhaps, more accurately, not enough clothes). In this case companies buy other companies to fill perceived gaps in technological and service repertoires.

Then there is the Sasquatch motivation, where the idea is to have a bigger footprint in terms of service segment or geographic market.

Buying out partners or distributors, to consolidate control and allow the telco to keep all the money, is another consideration in the acquisition stakes.

There is also the fire-sale deal, in which companies have apparently become simply too cheap not to buy up.

Finally, there is what might be styled the George Leigh Mallory mountaineering impulse; famously, Mallory's response to the question why he wanted to climb Mount Everest was: 'because it's there'.

Of the above, the first four are perhaps the most interesting. In addition to signalling where telcos think they see the money, such acquisitions and buy-ins give some idea of where the companies concerned believe they have weaknesses, where they suppose technology is heading, or where the markets are starting to become more interesting.

Moving up the value chain
A desire to accelerate the ongoing shift away from the provision of basic and increasingly commoditised capacity to the selling of value-added and corporate IT-type services is evident in a number of recent telco deals.

For example, in September Telecom New Zealand (TCNZ) confirmed the purchase of technology solutions provider Computerland NZ Ltd for NZ$26mn (US$17.3mn), two months after finalising the NZ$62.3mn acquisition of systems integrator Gen-i.

TCNZ chief information officer Mark Ratcliffe said the acquisition of Computerland would broaden Telecom’s ICT capability and increase its range of services, while simultaneously extending and diversifying Telecom’s customer base within the ICT services market. "Telecom’s purchase of Computerland, coupled with our recent purchase of Gen-I, is giving Telecom the room to grow in the ICT market, where the demand for services continues to be high", commented Ratcliffe. "The two acquisitions, together with Telecom’s own organic growth, will enable Telecom to provide the network-based delivery of solutions widely in a market which has traditionally relied solely on outsourcing services options".

A desire to enlarge its outsourced and managed service business has certainly informed some recent Telstra initiatives. In July the Australian incumbent won approval to acquire 100% of the shares of Australian ICT services and business process outsourcing (BPO) company KAZ Group Limited for A$333mn (US$241mn).

C&W footprint gets a little bigger
The Cable & Wireless Group is historically famous for its global Sasquatch footprint. In early June this got a mite bigger with an agreement to purchase a 55% stake in Monaco Telecom SA from Vivendi Universal for a total consideration of Є162mn. Monaco Telecom has a licence to provide public telecommunications services throughout Monaco, with exclusive rights to provide fixed line, mobile, Internet access, and cable services in the principality. Internationally, Monaco Telecom has operated a mobile network in Kosovo since 2000, and at the beginning of 2003 it was awarded the second GSM licence in Afghanistan as the strategic partner in a consortium 51% owned by the Aga Khan Fund for Economic Development.

Days before the Monaco deal, C&W had splashed out UK£18.6mn to purchase the share capital of Bulldog Communications Limited, a UK company specialising in the provision of broadband services. Bulldog offers a range of high-speed broadband services using DSL technology, both on the basis of BT wholesale tariffs and, increasingly, as a principal, having installed its own equipment in 38 BT exchanges in central London under local loop unbundling regulation.

Another telco looking, in part, to polish up its DSL game is Norway's Telenor. In August the company entered into a €6mn agreement with Tiscali to acquire that company's Norwegian operation. Tiscali AS has a total of 45,000 customers, comprising 18,000 ADSL customers and 27,000 customers with dial-up Internet. "Tiscali has been a reseller of Telenor wholesale products and since the company has decided to withdraw from the Norwegian market, it is natural for us to seek to acquire and continue the customer relationships", said Morten Karlsen Sørby, Telenor executive vice president. "We look forward to the competition authorities' processing of this case and hope for a quick resolution". Telenor says the Norwegian broadband market is experiencing strong growth and is expected to add more than 200,000 new mass-market customers in 2004.

North American wireless merry-go-round
It's becoming a little difficult to keep track of carrier buy-ins and buy-outs in the North American wireless industry.

Early in the year Cingular started the ball rolling with an agreement to acquire AT&T Wireless for US$15 cash per common share, or a cool US$41bn. Economies of scale seem to be the guiding force here. "This combination is expected to create customer benefits and growth prospects neither company could have achieved on its own and will mean better coverage, improved reliability, enhanced call quality and a wide array of new and innovative services for consumers", stated Stan Sigman, president and CEO of Cingular Wireless. After extended lobbying, the word is now that this deal will shortly get the regulatory go-ahead, albeit with some conditions.

In May, Cingular's pending acquisition of AT&T Wireless facilitated a US$2.5bn deal in which Deutsche Telekom terminated its wireless Joint Venture with Cingular in New York, California and Nevada. In this transaction, although a wholesale relationship will continue between the two parties for four years, T-Mobile USA becomes the sole owner of the GSM network in California and Nevada and will regain full ownership of the New York network. Chairman of the Board of Management of Deutsche Telekom AG, Kai-Uwe Ricke, commented on the intended buy-out: "we are confident that this investment will accelerate the long-term profitable growth of our US mobile operations by strengthening our market position in the important and attractive markets of California and Nevada".

Now we go back to AT&T Wireless. Last month, Canada's Rogers Communications Inc reached provisional agreement to buy back, for nearly C$1.77bn (US$1.4bn), the 34% of Rogers Wireless Inc held by AT&T Wireless. Rogers Wireless itself also bid around US$1.07bn for fellow Canadian GSM operator Microcell Telecommunications. Experts say the rationale for the first deal was to give Rogers better control of its day-to-day operations, and that for the second was to increase its market presence, particularly among young consumers who make up a significant percentage of the 1.2mn-plus subscribers to Microcell's 1900MHz 'Fido' services.

Eastern European promise
In the years before telecom's fall from grace, US and European companies piled into the emerging markets of Eastern Europe. And then, after a while, many of the US companies piled right back out again. Today, some European telcos who remained in play are enlarging their ownership of certain properties in Eastern Europe.

In July, for instance, for under €40mn after tax, France Telecom exercised 'put' options to buy out the 13.75% stake in Poland's TPSA held by Kulczyk Holding. France Telecom and Kulczyk Holding had controlled 47.5% of TPSA since 31 October, 2001. Following the exercise of the put options, France Telecom will directly control this 47.5% stake. This deal was presented as a strengthening of the relationship between the two parties insofar as a strategic partnership was also implemented, allowing "…France Telecom to benefit from Kulczyk Holding's provisioning capabilities in several areas of activities".

A second European telco that apparently believes that now is a good time to beef up its East European wireless portfolio is TeliaSonera. In August TeliaSonera's wholly owned subsidiary Amber Mobile Teleholding AB reached a US$63.5mn agreement with the Kazickas family to acquire the latter's 10% holding in UAB Omnitel of Lithuania. Having acquired the remaining outstanding shares, Omnitel became fully owned by TeliaSonera.

Interestingly, agency reports subsequently had France Telecom denying interest in a bid for TeliaSonera.

In the opposite direction
Of course, telcos don't just buy and swap businesses. In July Denmark's TDC sold off its Dan Net mobile/wireline traffic clearance and reconciliation service company to rival concern, MACH Sàrl., which is owned by the capital funds Advent and Providence. The sale netted DKK1.35bn (US$225mn).

In its former incarnation as KTAS, TDC founded Dan Net together with IBM Danmark in 1987. In 1999, TDC obtained a controlling interest in Dan Net by acquiring IBM’s 50% shareholding at a price of DKK 148mn. According to TDC the sell-off creates the world’s largest service company for the clearing of traffic between mobile and landline companies. "In connection with a consolidation taking place in the trade, TDC thoroughly contemplated Dan Net’s situation. One possibility was to purchase another player on the market. Another possibility was to keep out of the consolidation. And finally, a third possibility was to sell the company", observed Henning Dyremose, president and ceo of TDC. "We received an offer we could not refuse, and that settled the matter for the benefit of Dan Net’s customers and employees".