A desire to “push back” against technology giants like Apple and Google could fuel the interest of AT&T in buying Vodafone, according to Tim Boddy, an analyst with Goldman Sachs.
Speaking during a Tuesday-afternoon session at Congress, Boddy noted that smartphone purchasing by AT&T and Vodafone together equates to more than 20 per cent of the total revenue Apple generates from iPhone sales, which would give a combined entity “industry-leading scale benefits”.
“Vodafone is in the spotlight as an asset many would consider to be in play,” said Boddy. “It doesn’t have a controlling shareholder and is based in a country where M&A is permitted.”
AT&T ruled itself out of bidding for Vodafone in January, but some analysts believe it could mount a takeover attempt in the second half of the year as it looks to expand its international presence.
Although such empire-building has previously had disastrous consequences for shareholder value creation, Boddy thinks there is a stronger rationale for what he calls “out-of-market” transactions this year.
“The mobile industry faces an unprecedentedly concentrated ecosystem of suppliers, with Apple and Google obviously dominating in terms of operating systems and services,” he explained.
Goldman Sachs also expects to see more in-market M&A over the next two years – although regulation could clearly pose a barrier to such consolidation – as operators look to reduce their running costs and eliminate aggressive rivals like France’s Iliad.
“When you look at the disruption it has caused, taking enormous amounts of market share over the last two years, you can see why there might be interest in taking it out,” said Boddy.
Even so, he is less optimistic about the prospect of consolidation within the US, indicating this may have to wait until the “next administration”. Indeed, any likelihood that Sprint will acquire T-Mobile US seems to have receded, with Department of Justice officials unlikely to support a tie-up between the country’s third- and fourth-biggest players, according to recent reports.
Boddy also doubts operators will generate much value from M&A that takes them into adjacent industries. “It’s very hard to move the needle,” he said. “Telefonica and Vodafone have targets for new services that equate to low-single-digit percentages of total revenues and changing the dynamic is enormously challenging.”