It's adapt or die for SA's alternative telecoms network providers, as a wave of consolidation will hit the market in the next two years.
A shift towards converged offerings will see smaller players being gobbled up by large telcos, or close their doors, as companies battle it out for bigger client bases and access to IP-based infrastructure.
Smaller companies will be bought out, or disappear into obscurity, as the sector goes through its most dramatic change since the launch of the mobile operators.
Companies and consumers will be the ultimate winners as communication costs will be pushed down.
Reunert has already made the first move, buying ECN Telecommunications for an undisclosed amount, to bolster its aim of being a converged player in the next 18 months.
ECN CEO John Holdsworth says a wave of consolidation is coming within the next two years as voice and data - as well as fixed and mobile - offerings start converging.
Holdsworth says the market will become increasingly competitive, which will lead to consolidation as operators seek to grow market share and quickly reduce costs in an increasingly saturated market.
The only way to grow market share, says Holdsworth, is through takeovers, mergers and co-operation. “Dominant operators with a strong financial base will be able to acquire additional market share and technology.”
Holdsworth says smaller operators that do not have the necessary scale to compete with the larger companies are likely to either disappear or be bought out. Larger players with strong balance sheets - such as Telkom, Dimension Data, MTN, Vodacom and. Reunert - will be the “ultimate winners”, he believes.
Extreme surfing
Nashua Mobile CEO Andy Baker adds the wave of consolidation is “inevitable” and is being driven by a need for operators to have critical mass. Firms that only offer one product, such as least-cost routing, will be “in trouble”.
The result will be a sector dominated by a handful of large players, notes Baker. “The rate of change in the telecoms arena will be more extreme than in the last 10 to 15 years. We are entering a phase of massive, massive change.”
The shift towards convergence will lead to cheaper communications, and costs will come down by double digits for large companies, says Baker. This price reduction will inevitably spill over into the consumer market, he adds. “The savings can be material.”
Likely targets
Huge Group CEO James Herbst says Reunert's buyout of ECN will heighten the desire to be pre-emptive rather than reactive during the consolidation phase. “Reunert is one of many that will come, especially in the voice sector.”
Traditional least-cost routing and voice over IP companies will be targeted for buyout, says Herbst. Telcos want to buy up client bases, he explains, and it's cheaper to buy than to build. “Our businesses have value because of our clients.”
Smaller players like Vox and Huge are undervalued at the moment when considering their underlying assets and client base, comments Herbst. Buying out these companies will add massive value to cellular companies as they can strip out the overhead costs, he explains.
With the move to convergence, companies must “adapt or die” and smaller players will either be gobbled up, or slowly disappear, says Herbst. Mobile operators and companies like Altech Autopage and Nashua Mobile are “perfect buyers”, he adds.
Richard Hurst, senior analyst of emerging markets at Ovum, says many smaller alternative network providers are “positioning themselves to be gobbled up”. He says companies such as Vox and Huge Group will be snatched up by large network operators such as Telkom and the mobile players.
Hurst says smaller companies will be bought out because of their revenue streams, and larger companies will want to take out some of the competition. He says without vast infrastructure and a large reach to consumer and corporate clients, smaller players won't “really be anywhere”.
As a result, says Hurst, SA will end up with about four or five large companies controlling the telecoms sector and smaller players will find it difficult to compete.
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