We may still be some way from the heady days of 2000 which saw merger and acquisition levels in the telecoms sector peak globally at not far short of €500 billion, but the market is again seeing renewed levels of activity. According to figures from Thomson Financial the market emerged from a trough in 2004 of €36 billion to levels of more than €150 billion in 2005 and 2006.
Analysys Research’s Teresa Cottam comments: “M&A levels in the global sector were reported by Reuters at around €53 billion, but this figure hides a high level of transactions. We’re seeing significant consolidation of smaller players – particularly in high-growth markets – as well as telcos buying into new markets. An example of the first trend would be China VoIP buying Hangzhou Zhongfang; on the other hand you have KPN acquiring Getronics, which is part of a trend for telcos to strengthen their IT services portfolio for business customers. On the supply side consolidation continues to be significant and ongoing, with larger players absorbing technology-based start-ups to reinvigorate their product sets, or merging with rivals to create real scale and breadth of operation.”
And while combining businesses to increase geographical coverage or to extend into new domains might make commercial sense, consolidating the businesses effectively can be a significant challenge.
“A traditional IT objective in telecom M&A,” notes M&A expert Peter Sokoloff, “has been to migrate acquired companies onto the same standardised platforms. In practice this is usually a devilish task, requiring years and many millions in costs to accomplish. Further, the integration is rarely fully completed and IT execs can expect to contend with disparate systems, and installing the band-aids necessary to get them to cooperate, for decades to come.
"Management focus is usually driven by a desire to standardize front end systems like billing and customer care. But these, in turn, must tie into a multitude of other applications such as workflow, inventory, service activation, provisioning, and so on, each of which also taps into deeper network-level elements.
"The objectives set by larger carriers when contemplating integration are usually to drive greater cost efficiencies. While this plays well on Wall Street, this is where the trouble always begins. When the objectives of the integration are not driven by better customer service and improved network performance, the risk increases of serious execution errors and certainly causes countless headaches for the IT crew.”
Sokoloff cites the example of Sprint/Nextel where at the time of the $70 billion deal, Sprint predicted $12 billion of savings from reduced capex and opex.
Says Sokoloff: “The savings were expected to be achieved as a result of expenditures of $1.2–1.8 billion over 2006 and 2007. This past December Sprint announced a $29.5 billion loss, mostly relating to goodwill write-down of the purchase price paid for Nextel. How much of this loss might be attributed to fall out from integration and conversion issues has not been made public, but several reports have cited integration issues as contributing factors. At the end of the day, IT integration after an M&A rarely creates the cost efficiencies which look so great on paper.”
Peter is spot on in his assessment, but my question is whether this situation is acceptable. Wouldn’t it be of great interest to acquirers, business managers and shareholders if they were able to guarantee the efficiencies predicted at the point of acquisition? Shouldn’t they do more than accept these impressive-looking numbers on face value?
For all those that are still digesting their acquisitions or who now have a new target in their sights, my recommendation is to spend time and effort scrutinising how complex IT consolidation is going to be delivered before leaping into the unknown spend.
Also it is critical to assemble a team that spans both the business and the technologists, because your business managers are best placed to identify and prioritise where the greatest needs and benefits lie. This, in turn, frees up your IT staff to concentrate on the important job of delivering the migration.
Next, expect that a business-driven migration will begin to show business benefits early and incrementally. You should not have to wait for a long – often unspecified – period of time wondering and hoping if and when you will see any benefits.
Time-to-benefits should be short and ROI should be quantifiable.
Finally, the migration method and tool you use should be flexible enough to adapt during the migration to accommodate the changing needs of the business. For example, at the beginning of the migration you might decide you would like to move your biggest customers over first, followed by all of those that select a particular new service (which can only be supported on the target application), followed by all of those that live in a particular locality, followed by a bulk load of the remainder. Many of today’s migration tools would not be able to deliver a migration in this fashion, because they don’t allow you to identify and prioritise different business data sets, but instead see a mass of undifferentiated customer records.
If you really want to realize the commercial and operational efficiency that you know is there then the choice is yours. Don’t accept old technology or tools not built to cope with business-critical consolidation. Don’t commission custom-built solutions and then wonder why your project is so expensive or takes so long.
There is an alternative to solutions that are high risk and slow to deliver. Instead demand that you are using proven, state-of-the-art migration technology that can easily support a flexible, fast and business-driven migration.
Business value does not have to haemorrhage out of the organisation. Technology is now available that will stop your IT infrastructure from bleeding the value out of your acquisition and instead delivers the business value you desire.
