The move illustrates the growing wave of telecom mergers many expect to see unleashed, in part because conditions for consolidation in Europe are improving, because growth has stalled and because "growth by acquisition" is becoming the surest way to boost revenues.
The other issue is that dealmaking has been muted in the wake of the Great Recession of 2008, as was the case following the collapse of so many firms in the Internet Bubble crash. History suggests activity will climb again as distance from the last recession grows.
Global telecom deal volumes/deal values 2000–2010 Source: Thomson SDC Platinum
The "name of the game in the cable business is scale," Liberty Media Chairman John Malone says, referring to the need for yet another wave of consolidation in the U.S. and European cable business. In part, the problem is that markets are more competitive, with other providers taking market share, and with more pressure on profit margins.
As with any other market where margins are dropping, suppliers can compensate by increasing the volume of sales, which means more customer scale.
In principle, the same dynamics are at work in other parts of the communications business as well, ranging from mobile services to rural telecommunications to competitive local exchange carrier and incumbent local exchange carrier markets.
Apple and Samsung, for example, dominate profits in the smart phone industry, some would say because they also dominate market share.
That relationship between market share and profits is one reason consolidation in the cable and other parts of the communications and video entertainment business will continue.
Deal values by transaction type 2000–2010
Source: EY Survey Why Capital Matters (2000-2009) and Thomson SDC Platinum (2010 data)
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