At the beginning of 2017, a wide range of analysts predicted that telecom operators would begin to engage in some serious merger-and-acquisition activity—and soon.
And here, at the beginning of 2018, they’re still saying the same thing.
“M&A, which was likely the top focus item last year, but is still just as relevant in 2018,” wrote the analysts at Wall Street research firm Deutsche Bank in a note issued last month.
“The carriers acknowledge the inevitability of cable/wireless convergence, though we’re seeing a pause in all cable/media/telco M&A as mgmt. teams are in a ‘wait and see’ mode observing the AT&T/Time Warner outcome before acting,” wrote the Wall Street analysts at Cowen in a note also issued to investors last month.
Indeed, both the Deutsche Bank analysts at the Cowen analysts cited AT&T’s ongoing efforts to acquire Time Warner as the cloud hanging over the telecom space that’s currently stalling additional M&A activity.
“This dynamic is driving pent up M&A demand, and as we think about FCC/DOJ timelines and an unknown 2020 White House, we could see fervor of cable/wireless/media announcements if/when AT&T receives approval, and with T-Mobile noting it could be “sooner than you think,” the Cowen analysts wrote.
Indeed, AT&T has promised to take its Time Warner purchase to court in order to fight a legal challenge from the U.S. Justice Department. The court date for the DOJ’s challenge of the merger is set for March 19, 2018, and the Cowen analysts predicted the judge would likely draft a ruling on the topic by April but no later than mid-June.
The analysts at Deutsche Bank offered three reasons why they continue to expect M&A in telecom:
1, logic for consolidation has not changed
2, corporate tax reform has freed up more money for M&A
3, the shift toward 5G and convergence of fixed/wireless “may spur carriers and infrastructure providers to ‘bulk up’ asset portfolios,” they wrote.
Already, some telecom executives have predicted further merger-and-acquisition activity: “I think the AT&T/Time Warner surprise extension kind of put everything on hold for a while, but my belief is that there is a huge, pent-up bubble of logical things that need to happen for customers to be served,” T-Mobile CEO John Legere said last month. “It’s not a matter of if, it’s a matter of when.”