Europe has been a busy place for telecom-related mergers and acquisitions. We have seen competing bids from Twenty-First Century Fox and Comcast in attempts to acquire U.K. satellite TV provider Sky (SKY). Although we were previously sceptical of a bidding war between the two firms for Sky, recent regulatory announcements suggest that Fox's prior advantages when it comes to buying Sky – such as being the first bidder and already owning 39% of Sky shares – have been essentially nullified.
Complicating the matters further is Walt Disney's bid to acquire assets from Fox, although the U.K. recently announced that if Fox were to gather enough support from shareholders to buy Sky, and Fox were then able to sell Sky News to Disney, the Fox-Sky merger might be more likely to receive regulatory approval.
Nonetheless, we note that the latest price to acquire Sky is at our stand-alone fair value estimate for Sky, so any higher bids from here may result in a "winner's curse" for either Fox or Comcast. In Europe, the main telecom themes remain the move to convergence, along with increased build-outs of fibre and 4G.
Spain has long been the leader in convergence, with around 80% of broadband customers subscribing to a wireless service from the same company. France has also been pushing convergence but isn't as far along. Germany was slower at pushing convergence but is pushing it increasingly.
Now even the U.K. and Italy, which have been big laggards, are starting to offer converged services. The movement toward convergence is enhanced by the faster broadband speeds being offered by fibre. Historically, cable-TV operators have enjoyed an advantage with broadband speeds, owing to networks that were designed for video and include more fibre and coax rather than copper. However, in order to better compete, telecom operators are increasingly laying fibre that provides equivalent speeds to the cable operators.
Europe has been much slower at moving to 4G than the U.S. or Asia, but 4G has really taken off in the past year. However, penetration rates are still behind the U.S. and parts of Asia. Thus, we expect the transition to 4G to continue as operators extend their 4G networks further. While the transition to 4G continues in Europe, the U.S., Japan, and South Korea are preparing for the jump to 5G. Several companies in these countries have discussed initial offerings by the end of this year.
