Mergers  and Acquisitions in the telecommunication industry  

Table of contents

1.  Introduction  3

2.  Historical Development of the telecommunication industry  4

2.1.  The beginning of modern telecommunication.  4

2.2.  United States.  4

2.3.  Europe.  7

2.4.  Summary.  9

3.  Current market situation in the telecommunication industry  10

4.  Behind the urge to merge: Reason for Mergers and acquisitions in the  

telecommunication  industry  11

5.  Recent Mergers and Acquisitions.  13

5.1.  Recent Mergers and Acquisitions in Europe  13

5.2.  Recent Mergers and Acquisitions in the United States  14

5.3.  Major differences between Mergers in the USA and Europe.  14

7.  Outlook and Conclusion  15

8.  Literature  16

8.1.  Printed and digital media  16

8.2.  Further websites.  16

Tables   

Table 1  The United States' biggest Telecommunication companies 2003  7

Table 2  Europe's biggest telecommunication companies 2003  9

Page  2 of  16

Mergers and Acquisitions in the telecommunication industry

1. Introduction

The telecommunication industry is one of the fastest moving industries, today. Nearly everyday we hear a new story about another mega merger of another insolvent company.

Therefore it may be worthwhile to study this industry. But before talking about Mergers and acquisitions in the telecommunication industry I will first of all give a definition of what telecommunication is. According to Wikipedia,

Telecommunication is the extension of communication over a distance.[…..] hence the term 'telecommunication' covers all forms of distance and/or conversion of the original communications, including radio, telegraphy, television, telephony, data communication and computer networking. ¹ When talking about telecommunication we can distinguish between carriers, service providers and suppliers. Carriers

Carriers are companies that offer the cables and wires to enable communication over a distance. A German carrier for example is the Deutsche Telekom because they own a network for communicating. These carriers usually offer communication services too. Service providers

As the name indicates, service providers offer services. They do not own the network but they can use the network of another carrier and have to pay some kind of rent for it. Suppliers

Suppliers are companies that sell communication hardware (e.g. mobile phones). They do not own networks or offer any communication services. One of the biggest telecommunication suppliers is the Finnish company Nokia. As the telecommunication industry is very complex I will only focus on carriers and service providers.

¹ Vgl. URL: http://en.wikipedia.org/wiki/Telecommunication Page 3 of 16

Mergers and Acquisitions in the telecommunication industry

2. Historical Development of the

telecommunication industry

The history of the telecommunication industry is very interesting. It started in the United States in the 19 ^th century and it developed very well. There were different trends all over the world. So the telecommunication industry in the United States developed differently from the European telecommunication industry. Therefore I will start with a short description of how modern telecommunication began and will than move on to the historical development of the telecommunication industry in the United States. That will be followed by the historical development of the telecommunication industry in Europe. At the end of this chapter I will summarize the whole thing a draw a short conclusion.

2.1. The beginning of modern telecommunication

We can say that modern telecommunication started in 1837 when Samuel Morse patented his version of the telegraph. The telegraph helped to interconnect the cities of America in that time. America was not well developed in the 19 ^th century and it took days to deliver a message in that time. With the invention of the telegraph these delivery times were reduced dramatically.

The next big invention was done by Mr. Alexander Graham Bell who patented the telephone in 1876. Only one year later he founded the “Bell Telephone company”. The Bell Telephone Company connected households within a regional horizon. 2

2.2. United States

As said above, the Bell Telephone company was active in the short distance telephoning. In 1885 The “American Telephone and Telegraph Cooperation (AT&T) was set up to operate in the long-distance telephoning. In 1899 AT&T acquired The Bell Telephone Company. This acquisition led to a de facto monopoly for AT&T because Bell had gradually acquired all the companies that licensed telephone equipment. So AT&T had a monopoly in the

² Vgl. URL:http://aronsson.se/hist.html Page 4 of 16

Mergers and Acquisitions in the telecommunication industry

short distance and the long distance telephoning and was also the only producer for telephone equipment. The whole thing was called “The Bell System” In the Kingsbury Commitment of 1913 the Government accepted a proposal of AT&T president Theodore Vail that a formal monopoly would be more efficient than competition (natural monopoly). With the Bell Company for short distance and AT&T for long-distance connections, the AT&T Company had a monopoly for most of the 20 ^th century. Competition started in 1975 with the opening of the long-distance market. AT&T’s first big competitor was MCI that forced its way into the business. MCI fought many legal cases against AT&T to be allowed to enter the telecommunication market. But the biggest Anti-Trust case was between 1974 and 1982 which led to a reduction of AT&T’s value by 70%. As a result of this Anti-Trust case AT&T’s local operations were split up into seven Regional Bell operating companies (RBOC), known as “Baby Bells”. AT&T continued to run its long-distance and the RBOC were not allowed to enter the long-distance market. 3

So from 1984 there were seven RBOC’s for the short distance telephoning which had a de facto monopoly in their region and a more or less liberalised market in the long-distance telephoning. The Telecommunication Act of 1996 changed the telecommunication regulation and opened the market for competition. This act removed all the trade barriers. The RBOC’s were allowed to enter the long-distance market and AT&T was allowed to enter the short distance market. Three main aspects are to be mentioned: 1.) The Telecommunication Act abolished monopolies 2.) The Telecommunication Act opened the local exchange and exchange access market to competitive entry

3.) The Telecommunication Act promoted increased competition, especially in the long-distance market.

So we can say, the Telecommunication Act of 1996 truly opened the telecommunication market for competition, while all other regulatory acts before encouraged monopolies. 4

³ Vgl. URL: http://en.wikipedia.org/wiki/AT%26T

⁴ Vgl. Legal history of telecommunication Page 5 of 16