Mergers and Acquisitions - Just the beginning.

The telecommunications industry both locally and internationally has seen its share of is mergers and acquisitions (M&A), with companies jumping into new business markets and expanding their existing footprint to be more competitive. Internationally, the M&A activity garnering the most attention has been AT&T’s $85 billion deal to buy U.S. media company Time Warner Inc. Not to be outdone T-Mobile US, recently agreed to acquire Sprint, in an all-stock deal for $26 billion, that will combine the third and fourth largest U.S. wireless carriers.

Within the region we have seen our share of M&A activity, mainly:

Trinidad -  51% of Green Dot Limited by One Caribbean Media Limited

Trinidad - TSTT acquired Massy Communications (Amplia Communications)

Regional – Liberty Global acquires Cable and Wireless

Regional - Digicel buys Idom Technologies

Dominica - Cable & Wireless acquires Marpin 2K4 Ltd

M&A have been a mainstay of the telecom industry for many years and have undoubtedly transformed the telecom industry landscape into the competitive playing field we see today. The trend of in-country consolidations is predicted to increase based on ongoing regulatory liberalization, privatization of the industry and as operators attempt to improve their revenue and cost position and seek to achieve synergies and gain access to key assets such as fiber networks and spectrum. Operators are also expanding into non-core areas such as retailers, IT services, business-to-business (B2B) thereby enhancing their growth opportunities. In a recent survey conducted by Ernst & Young, 61% of telecoms executives, indicated that the impact of digital technology on business models and threats from digitally enabled competitors are the biggest disrupters and a clear impetus for M&A in the sector, which enables an operator to access new opportunities that can help avoid the impact of disruptive innovation.

In Trinidad and Tobago just like the rest of the region and Internationally regulators seek to “deepen competition” whilst operators are seeking to solidify their positions and improve EBITDA margins. One only has to look at India’s savage mobile telecom space where Aircel who has 85 million customers across the Indian sub-continent, was recently forced to file for bankruptcy because of minuscule profit margins and market congestion. Given existing wafer-thin margins and overcrowded markets, which are stunting operator’s ability to invest and thus impacts operators who race to develop and implement 5G and Fiber to the Home (FTTH) networks. What can we expect locally in the next 12-18 months as it relates to M&A activity? Here are the companies on my watch list.

As M&A activity heightens, we can expect to see a much different telecoms landscape in the next 12-18 months. But in this industry “Change is the only constant.” Invariably if any of the above-mentioned entities do in fact end up being part of a merger or acquisition, the buyer needs to be aware of the three major Pre-merger/acquisition risks, which are regulatory approval, human capital considerations, contract review and due diligence.

Editor’s note: The views expressed in this commentary are those of the writer, who is communicating in his personal capacity. All commentaries seek to provide personal analysis and interpretations of telecommunications themes in the Domestic, Regional, and International markets.

TSTT acquires Massy Communications

The industry was abuzz today when Massy Communications and TSTT signed a Share Purchase Agreement (SPA), in which TSTT will purchase 100% shareholding of Massy Communications Ltd. Last time we had this excitement was when 51% of GreenDot was acquired by One Caribbean Media. Let me start off by saying I believe the TT$ 255 million to be a fair price based on my calculations. This is all part of TSTT's 5-year strategic plan which speaks to transforming the company into an Agile Broadband Communications Company (ABCC) utilizing both organic and inorganic growth strategies.

So let's get down to the nitty-gritty and examine potential outcomes and other matters

Option 1 - Vehicle to facilitate organization transformation

So you need to transform your organization from a legacy entity to an ABCC. This presents an opportunity for TSTT to do the same by making this the model organization (keep it separate) and the company determines when and how individuals, business units etc move into the future state org. By the way, the future state from an outside plant perspective will be fiber (which was a decision some exec made back in 2013 ). Tied to this will be some level of rebranding most likely similar to what was done by Digicel - Digi Mobile vs Digi Play. I can only assume other options were analyzed such as what transpired at BWIA and found not palatable at his time. 

Option 2 - Integrate into existing "legacy" operations

Massy Communications lost TT $40 million in 2016. So it means that something has to be done quickly to get this profitable. This could lead to rationalization of duplicate resources. eg. Call Center resources, Infrastructure (buildings, Inside & outside plant) etc. The company will obviously be mindful of what assets it can impair as Massy's assets would have been commissioned less than two years. However, this also presents an opportunity for TSTT,  who are seeking to rip out their legacy OSS/BSS. Depending on what Massy has in place it may enable TSTT to get ahead of the curve with its implementation. 

Option 3 - Combination of Option 1 & 2

Industrial Relations

The Recognized Majority Union will seek to engage the executives and board if option 2 or 3 are selected and certainly draw to management's attention Article 1.3 of the existing collective agreement which states"All provisions of the Agreement shall be binding upon the successors or assigns of the Company and the Union. In case of a consolidation or merger, representatives of the Company and the Union shall meet without delay and negotiate suitable provisions for the protection of the employees’ seniority, service, benefits and other interests". This may have longer-term implications on wages and salaries as a % of total opex. Note wage bill is approximately 45% of total opex.

If option 1 is selected the union will certainly pursue recognition seeing that the RMU has recognition for Borde Communications (Illuminat).

What happens to the 49%

Source: Massy 2016 Annual Report 

Massy was rumored to be the front-runner in acquiring the 49% shareholding in TSTT that is owned by Cable and Wireless. A colleague of mine said it is too much of a stretch for Massy seeing that their share price took a hit for 2016. But in my humble opinion with a debt to equity ratio of 32 percent and a strong cash flow and cash position, I would not rule out a sale and buy-back agreement in the medium term. As Massy should see telecommunications as a significant pillar and key to achieving its long term goals. Whether they own a piece, all or none is another story but time will tell. Who knows maybe the end game is to transform TSTT into a regional operator.

Editor’s note: The views expressed in this commentary are those of the writer, who is communicating in his personal capacity. All commentaries seek to provide personal analysis and interpretations of telecommunications themes in the Domestic, Regional, and International markets.

To Cut or Not (Cord Cutting)

Recently a few friends of mine were engaged in a heated argument surrounding what is fondly called in Trinidad "Android boxes" or to the rest of the world "Kodi Boxes". These boxes enable a user who has the right apps and add-ons to access copyrighted material such as premium pay-for-TV channels, live sport, and films. For the most part out of a group of 9, 6 favored these boxes with 3 against. The 3 against was a lawyer, one telecoms executive (hmmm) and a musician. The arguments for cord cutting were as follows:

1) Rising cable subscription cost.
2) Commercial-free viewing.
3) No need to Pay for unwanted channels.
4) TV on demand (Watch what I want when I want).
5) TV "anywhere" (Once a Broadband (BB) connection is available).
6) Freeing the younger generation from subscription cable services (Cord Nevers).
7) One time fee (box pays for itself in a few months).
8) BB cost cheaper than TV subscription.
9) Movies/TV Show quality (1080P and 720P).
10) Cinema is too expensive.

The arguments for not cutting:

1) It's illegal (Selling of boxes got one user 4 years in an English prison).
2) The impact of piracy on thousands of jobs. (ESPN Layoffs)
3) Loss of revenue to parties in the entertainment industry supply chain. (AT&T lost 233,000  customers in Q1 2017 because of cord-cutting and cheap data plans)

The entertainment industry has always had to contend with piracy just like the music industry. Twenty years ago, monetizing content meant releasing it to a sizable audience at the multiplex or on VHS, DVD, pay-per-view or cable television. This is being challenged by today's customer demand for streaming on-demand content.

What are operators to do besides taking legal action against individuals selling these boxes?

1) Lobby regulators to take a firm position on pirated content.
2) Block relevant IP addresses.
3) Anti-Piracy public awareness programs (Some providers may get little sympathy from their current and past customers).
4) Push KODI (XBMC) and Android developers to adopt DRM (Digital Rights Managment) thus enable streaming of legal content.
5) Develop a robust broadband offering to offset the potential revenue decline in their subscription TV service. (Dominate the BB Residential, Enterprise, and Government market spaces)

Sadly piracy is here to stay, remember Napster circa 1999. Has music piracy stopped? Bottom line operators need to quickly formulate strategies to address declining revenues resulting from customers cutting the cord, as somehow everyone loves the word free, even when all that glitters is not gold.

Editor’s note: The views expressed in this commentary are those of the writer, who is communicating in his personal capacity. All commentaries seek to provide personal analysis and interpretations of telecommunications themes in the Domestic, Regional, and International markets.

ATT and Time Warner Merger

So in case you haven't heard AT&T is acquiring Time Warner Cable (TWC) for $85.4 billion. TWC has three divisions which are as follows:

• HBO, which consists of domestic premium pay television and streaming services (HBO Now, HBO Go), as well as international premium & basic pay television and streaming services.

• Warner Bros. Entertainment, which consists of television, feature film, home video and video game production and distribution. Warner Bros. Film franchises include Harry Potter & DC Comics, and its produced TV series include Big Bang Theory and Gotham.

• Turner consists of U.S. and international basic cable networks, including TNT, TBS, CNN and Cartoon Network/Adult Swim. Also, Turner has the rights to the NBA, March Madness and MLB. Time Warner also has invested in OTT and digital media properties such as Hulu, Bleacher Report, CNN.com and Fandango.

One can quickly see this is not a bad investment for AT&T on the heels of their acquisition of DirecTV last year. 

Period	11-Dec	12-Dec	13-Dec	14-Dec	15-Dec
Gross Margin	53.56%	53.51%	53.25%	76.79%	75.46%

So where is telecoms heading? As I have been telling colleagues in the industry the game is down to two things 1) Bandwidth and 2) Content. So ATT has both Wired(Fiber to the Home) and Wireless (Mobile) offerings and with 5G around the corner, it means that they don't only have pipes but also have significant content which they intend to push to customers. 

So bringing this home it begs the question who is really positioning themselves to not only be the dominant player in the broadband game, but also have the content that not only appeals to a local market but regional and international markets as well. As make no mistake there is value in Caribbean content the issue here who is going to corner the market and become the leader in the converging media and communications industry. Flow (Now Liberty Global) and Digicel have made inroads into the media space and One Caribbean Media (OCM) has made inroads into the telecoms space, so let's see how the local market plays out as vendors seek to make Over the Top (OTT) and TV Everywhere products smarter and more personalized.

Schedule F Overview (Quality of Service requirements)

Trinidad and Tobago celebrated carnival 2016 on the 8 & 9th of February. Ronnie and Caro won band of the year with their presentation Tears Of.....  So by now, you are asking yourself what does a Mas band have to do with Telecommunications. Well, strangely enough, Band leader Ronnie McIntosh highlighted in a TV6 interview that customer service was key to the band's success.

Mas bands like Telcos have to satisfy a diverse consumer population, the key is how do you satisfy increasing customer demands whilst managing cost. As a starting point providers must meet their regulatory obligations. You will recall I mentioned Schedule F in a previous post. Schedule F can be broken down into eight areas and I will highlight a few KPIs to give the readers a feel for what is measured by the TATT (Local Telecoms Regulator) given that concessionaires normally have to provide the regulator with quarterly updates on performance.

General 

1. Service Activation Time - Fixed Telecoms/ Subscription broadcast ≤ 10 working days. Mobile Telecoms ≤ 2 working days. 
2. Service Re-activation Time - ≤ 24 hours or the next working day.  
3. Consumer Query Response Time -  85% of occurrences  within the following timeframe:

• ≤ 40 seconds Customer Service 
• email contact: ≤ 24 hours or the next working day 
• Customer Service Center: ≤ 1 hour

Public Telecommunications Access Services 

1. Public Payphone Availability - ≥ 85%

Public Data (Internet) Telecommunication Services

1. Average Bandwidth to Consumer - Dial-up access: ≥ 28.8 kbps Broadband access: ≥ 128 kbps or ≥50% of advertised throughput.

Subscription Broadcasting Services

Wholesale and Interconnection services

Network Services

1. Call Drop Rate - Fixed access: ≤ 1.5 % Mobile access: ≤ 4 %
2. Call Failure Ratio - Fixed Access: 0.5% Mobile access: 3.5%

Speech Quality 

Internet Access Services

1. Internet Access Local Network Availability - ≥ 95% 

Achieving QOS requirements are not going to satisfy the demanding telecommuting customer in this day and age and actually, you may find yourself with little or no customers if your aim as an organization is to just meet your concession requirements. So set aggressive targets to ensure that the organization focuses on exceeding customer expectations as what separates you from the competition is ultimately going to be the level of service offered to your customers.

TATT is also proposing to implement the Consumer Rights and Obligations Policy  (Additional/revised QOS requirements) which may be a tall order for certain companies. A quick review of one of the KPIs (Repair times) in the current draft is shown in the table below.

18 months from the implementation of this policy the expectation is that all providers must be able to complete 75% of repairs within 24 hours for fixed-line telecommunications. Now whilst this is great for the consumer lets take any day in the week. In most T&T households mom & dad are working and not at home until after 6pm  so this translates into a next day or weekend technician visit (KPI already shot). Whilst there are solutions to address these shortcomings in the proposed policy I will leave that for another time.

So is your provider meeting their QOS obligations as defined in Schedule F? 

What are Telcos to do with their copper plant?

 
Recently we have seen major players in the local telecoms market advertising Fiber to the home (FTTH) or Fiber to the Node (FTTN). Engineers will tell you that FTTX is ultimately the best fixed access technology available today supporting GPON, EPON etc and as such is "future proof". But what are operators to do with their legacy copper plant? The answer is simple. Sweat that asset as long as possible, even against a backdrop of impending Local Loop Unbundling (LLU) regulations.

 On the Cable end they have DOCSIS 3.1 which allows 10 Gbps per network node downstream and 1 Gbps upstream which, despite the shared-bandwidth nature of their networks will enable cable operators to remain extremely competitive. On the Telco side, you have VDSL2, which allow telcos to deliver 100 Mbps services over copper assuming copper infrastructure was previously redesigned to have shorter loop lengths as shown below.


New technology being tested/implemented in Telcos is G. Fast which was tested recently by Cable and Wireless Panama. Download speeds were as high as 500 Mbps existing copper fixed lines. With this technology operators with significant copper plant can "sweat those assets" all things being equal. Obviously, operators have to take this on a case by case basis as in some instances (competitive pressure, quality of existing copper plant, etc.) it may just make good business sense to go the FTTH route. However, note that it doesn't stop here as on the horizon is 5 Gigabit broadband (See bandwidth comparison below). So think carefully as you may not want to wreck that copper plant just yet.

Adapted from Huawei

Watch out that message may not be private!!!!

I came across a judgement in the European Court of Human Rights (ECHR) dated 12th January 2016 and thought I should share. The terminated employee who was previously classified as an engineer in charge of sales in a private company filed a complaint where he claimed that his right to respect for private and family life, home, and correspondence had been violated by his employer. At his employer’s request, he created a Yahoo Messenger account for the purpose of responding to clients’ inquiries.

The employer On July 13, 2007, informed the employee that his Yahoo Messenger communications between July 5 to July 13, 2007 were monitored and that the records showed he had used the internet for personal purposes. The employee countered in writing indicating that he only used Yahoo Messenger for business purposes at which point the the employer provided transcripts of messages between the employee and family members some of which dealt the health and sex life. The employee was subsequently terminated on 1st August 2007 for breach of the company’s internal regulations which prohibited the use of company resources for personal purposes.”

The employee challenged his employer’s decision at the ECHR. The court dismissed the employees complaint sighting that the employee had been duly informed of the company’s regulations. The court placed on record that it was not unreasonable for an employer to verify that employees were performing assigned tasks during working hours moreso as the employer had access to the employee's account given that it contained client-related communications.

Most local companies have some rules surrounding the use of the communications tools which traditionally would be email and correspondence and as such some companies may have to review these regulations as they may be dated and not contain clauses surrounding social media apps. However, employers need to beware as well given that reading an employee's communication may have implications under the Interception Of Communications Act  depending on how the password was obtained.

Does your organization have regulations surronding the use of personal computers, email systems etc? If so do employees adhere to the policy?