Southeast Asian telecoms merge into mega-groups to invest in 5G

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Telecom companies in Southeast Asia have announced merger deals worth a combined $ 30 billion this year as they seek to expand their market influence and improve profitability.

But while consolidation should help the investment plans of companies, whose shareholders include some of the world’s largest telecommunications operators, their growing dominance of the region’s rapidly growing communications infrastructure sector is of potential concern to consumers. analysts said.

Among the recently announced deals, Thailand’s True, the second mobile operator owned by the country’s largest conglomerate, Charoen Pokphand, announced late last month that it was teaming up with Dtac, owned by Norwegian Telenor. The merger would create an $ 8.6 billion company with around 51 million users, compared to around 43 million for its biggest rival AIS.

In Indonesia, Southeast Asia’s largest economy, Qatar-based Ooredoo, and Hong Kong’s CK Hutchison, the two largest operators, are set to join forces in a $ 6 billion deal that regulators are expected to approve by the end of the year.

In Malaysia, regulators are set to assess a $ 15 billion mega-merger between local company Axiata and Telenor that would create an industry leader with a 46 to 50 percent market share, according to Fitch estimates. Ratings.

Consolidation of the telecommunications industry has accelerated globally, as companies continue to expand to cover the costs of investing in 5G and full-fiber broadband networks.

100m

Subscribers as part of a potential merger between Indosat Ooredoo and Hutchison 3 Indonesia, which would only follow leading operator Telkomsel

The same drive towards profitability prompted telecom operators to leave regions that were seen as engines of growth but failed to generate sufficient returns. Sweden’s Telia has unwound its Asian assets, while Spain’s Telefónica is leaving most of Latin America.

But in Southeast Asia, some regulators tend to approach consolidation and competition more leniently than their counterparts in other parts of the world, analysts said, making the region attractive to global telecom groups by quest for scale.

Thailand’s Trade Competition Commission last year gave the green light to a $ 10.6 billion bid from Charoen Pokphand, already a dominant presence in several industries, to buy Tesco’s Thai and Malaysian supermarkets, which makes it the largest retailer in the kingdom.

Thailand’s National Broadcasting and Telecommunications Commission, which has authority over antitrust matters in telecommunications, called the True-Dtac merger “inevitable” and said it would not block it.

“In European countries, it is difficult to do mergers and acquisitions because the regulator is quite strict,” explains Pisut Ngamvijitvong, equity analyst at Kasikorn Securities in Bangkok. “But in this region, regulators are seen as not being as strong.”

Malaysia has proven to be tougher on telecom companies seeking mergers. In 2019, Telenor was thwarted by the government in an earlier attempt to merge all of its Asian operations with Axiata, which would have created a company with $ 23 billion in revenue and 300 million users.

The Norwegian company changed the plan to incorporate only its operations in Malaysia and announced an exit from Myanmar following a military coup there this year.

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Industry analysts have said the merger business cases are strong from an operator perspective. Ulrich Rathe, analyst at Jefferies, said the combination of Telenor Dtac’s Thai unit with True made strategic sense, as it would unleash synergies in a market that has become more mature than in previous years where Asia was presented as ” growth, exclamation mark ”.

“Telenor is looking for consolidation partners to help it resist political and shareholder pressure,” he said.

However, some academics have questioned the impact of the decrease in the number of telecom operators in the region on competitiveness. In Thailand, where the government is championing a push for digital innovation “Thailand 4.0” to rebuild its regionally underperforming economy, the merger would reduce the number of large telecommunications companies to two.

Somkiat Tangkitvanich, chairman of the Thailand Development Research Institute, told the Financial Times that the True-Dtac merger “sets Thailand back 17 years” when it only had two major operators: Dtac and AIS.

“If there is a merger, prices will come down much more slowly and operators won’t need to compete so much on quality,” Somkiat said. “Thailand would like to be Thailand 4.0, but for that we need competition to create the necessary infrastructure. “

Mobile operators also serve as gatekeepers for a range of other emerging digital businesses that extend beyond mobile telephony, from remote robotics to education, analysts said.

“While there is no magic number on how many players should be allowed in a scale-driven industry like telecoms, this deal – if cleared – will officially transform Thai telecoms [sector] duopoly, ”said Pavida Pananond, professor of international business at Thammasat Business School in Bangkok.

Meanwhile, the merger between Indosat Ooredoo and Hutchison 3 Indonesia will create a network of more than 100 million subscribers, just behind leading operator Telkomsel, and increase the number of major operators from five to four.

Indonesian regulators backed the consolidation because prices were already low, so the proposed merger was “unlikely to affect consumers too much,” said Nitin Soni, analyst at Fitch. “Five becomes four is not a big deal for regulators.”

The Indonesian Ministry of Communication and Information Technology has already given its approval in principle to the agreement.

However, Soni said, the proposed Telenor-Axiata merger in Malaysia, which would be the country’s largest telecommunications deal on record, could be subject to stricter regulatory scrutiny.

The latest move would give the merged entity control of up to half of the domestic market and reduce the number of big players from four to three, leading some to believe the regulator could block the deal again.

“The regulator might not even allow it or impose certain conditions on things like [restrictions on] specter, ”Soni said.

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