What generally happens when industries have only regional providers or merely a whole slew of competitors? Usually it boils down to mergers for size and scale, then outright acquisitions to eliminate competition. We have seen this consolidation in the wireless space with AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ), Sprint Corp. (NYSE: S) and T-Mobile US Inc. (NYSE: TMUS).
Fitch Ratings recently showed that the four largest U.S. wireless carriers have some 92% of the U.S. market share. The long and short of the matter is that M&A in the U.S. wireless space has seen its heyday. 24/7 Wall St. has compiled a full-spectrum analysis of which wireless and telecom carriers and providers can still be acquired and which ones simply cannot.
The good news for investors hoping for M&A is that some players do still exist. The bad news is that these players now all will be considered weaker competitors on their own, meaning that investors have to be very careful if they want to buy a company based only on its own merits and opportunity.
We agree with Fitch Ratings in its belief that few material targets remain when operators and spectrum holdings are considered. We also operate under the same belief as Fitch that the Federal Communications Commission (FCC) would restrict any further material consolidation among the top wireless carriers. So the real question, and opportunity, outside of the wireless carriers is where else to look for M&A.
One such move that Fitch expects in the near term would be that Dish Network Corp. (NASDAQ: DISH) will make a wireless strategy move within the next few months, and according to outsiders it would likely be in some form with T-Mobile US Inc. (NYSE: TMUS). Fitch said, “Activity around DISH could be the most significant near-term wireless industry consolidation event.”
Elsewhere, Fitch believes that the 578 to 698 MHz TV spectrum auction could occur around 2015 or 2016, and that auction alone could represent the largest single acquisition event for the industry over the foreseeable future. Unfortunately, that leaves no room for investors because you cannot invest in the government nor in the FCC. Another hopeful from Fitch is some or all the LightSquared L-band spectrum.
So, what other mergers are there in the near term or long term? We would point out that AT&T Inc. (NYSE: T) was blocked in its acquisition of T-Mobile US Inc. (NYSE: TMUS).
The Verizon Communications Inc. (NYSE: VZ) deal with Vodafone Group PLC (NYSE: VOD) is the largest deal and has been years in the making. Now Verizon gets to own effectively all of Verizon Wireless. One fear of 24/7 Wall St. is that Verizon may have to work on its leverage now rather than continue to pursue annual dividend hikes.
The end of M&A may take away oomph for the quick in and out traders and may limit special situation investing. The good news is that this could be the best thing in the world for dividend-hungry investors. Fitch was specific to say that the end of the M&A cycle will bring steadier financial trends and called it a consolidated and maturing marketplace.
24/7 Wall St. has gone back over the telecom and wireless operators that are left. There are still some potential acquisition candidates, but our focus revolves around who can close a regional dominance gap or who can bring other spectrum assets or other lesser-known assets to the table. Here are some of the possibilities after some freshly closed and pending transactions.