Opening up the markets in US telecoms

Danielle Robinson in New York looks at the M&A activity in the wake of recent deregulation in the US

Wall Street is gearing up for a burst of multi-billion dollar mergers and acquisitions and underwriting business arising from President Bill Clinton's signing of a wide-sweeping telecommunications law last week.

The new legislation unleashes a competitive free-for-all in the country's telephone, cable and media industries by allowing long-distance carriers, local phone companies and cable television operators into each other's markets.

The law also lifts a ban on cross-ownership between cable and phone companies in small communities and frees media companies to buy more television and radio stations.

The ramifications are not confined to America's borders. "In each country, there may be historically one phone company. In the next five to 10 years most countries will have at least two, if not two to five companies," says Mark Maybell, co-head of the telecomm- unications, media and technology investment banking group at Merrill Lynch.

The UK is already heading down the same track. Last week's announcement of United News and Media's pounds 3bn merger with MAI was in anticipation of further deregulation in its industry, as in the US where the prospect of new communications law last year led to a spate of media M&A announcements, including Walt Disney's $19bn merger with Capital Cities/ABC; Time Warner's purchase of Turner Broadcasting System and Westinghouse Electric Corp's $5.4bn acquisition of CBS Inc.

Indeed, within hours of the telecom bill becoming law, the Federal Communications Commission last week cleared the Walt Disney merger deal with Capital Cities to create the world's biggest media group. Now the FCC is considering abolishing rules that bar media companies from owning newspapers and broadcast stations in the same markets.

Mergers between media groups are just beginning. Media conglomerates such as News Corporation as well as software companies like Microsoft are forging alliances with telecommunication groups to ensure they are among what will end up being a handful of communications monoliths controlling both product and distribution networks in the future.

Mr Maybell said: "What you are seeing people striving for in the US and what you can expect to see occurring around the world are moves to develop nationwide brand names that sell all of these products - local and long- distance telephone, cellular and video capacity in the one package."

The idea is that big brand-name companies like AT&T will eventually provide households' local and long-distance telephone services, cellular phones, cable, Internet connections and personal computer services with all the additional news, business, education and entertainment paraphernalia that goes with it.

The basic aim of future M&A in the industry is to control the transmission of three basic telecommunication products - voice, data and video. The distribution networks include the simple twisted copper-pair wire networks of phone companies, wireless transmission like cellular and satellite, and coaxial and fibre-optic cable. Phone companies' wire networks are the slowest transmitters and will not cut it in the future, which is why some of the biggest telephone operators in the US are aligning themselves with big cable operators. Also, cable can provide an instant local telephone network for long-distance telephone providers. Sprint, the third-biggest US long-distance telephone provider, is the first to get all of the pieces of the puzzle. It has developed a link-up with three large cable operators: Tele-Communications International (TCI), Cox Communications and Comcast Corp.

AT&T is among the most aggressively acquisitive, say bankers. It took over McCaw Cellular a few years ago and has recently taken a strategic investment in the satellite network, Direct TV, which is like the Sky TV of the US. "It's now missing the local phone piece and getting that could manifest itself in a number of ways," said a leading Wall Street M&A expert. "It could end up being a strategic investor with Time Warner television, or be a strategic investor in Continental Cable Vision [based in Boston]. There is also speculation it could look at [local telephone operator] GTE Corp."

Time Warner, TCI and Comcast are also expected to be acquiring companies in the future. Among the US's seven regional "Baby Bell" providers of local telephone services, the most acquisitive include US West, Bell Atlantic and Bell South.

With the passage of the new law, Bell Atlantic and another Bell, Nynex Corp, are negotiating a joint venture to enter the long-distance business and are also discussing the possibility of Bell Atlantic, with a $31.5bn market capitalisation, acquiring Nynex (with a $25bn market cap) in a tax-free stock swap. If the deal happens it would be the biggest takeover in US history, exceeding KKR's $25bn leveraged buy-out of RJR Nabisco.

Potential takeover targets include GTE and, among the Baby Bells, Pacific Telesis Group (PacTel) and Ameritech.

Most interestingly, MCI Communications, the country's second-largest long-distance operator, which has a strategic investment in News Corporation, is also on bankers' list of potential takeover targets.

"MCI will be acquired," said an M&A head in New York. "They have long distance but they don't have a wireless or cable footprint and a Bell phone company could easily acquire MCI and not have any conflict related to doubling up on wireless capacity."

MCI's added value is its connection with News Corporation. "Anyone who acquires MCI are basically getting a foothold into News Corp," said a banker. "This makes MCI even more attractive."

Wall Street bankers are smacking their lips in anticipation of all the fees arising from such business. A typical Wall Street M&A fee schedule on a $10bn deal is about $20m, with fees usually capping out at $30m on larger deals.

Deregulation will also generate billions of dollars in revenue from spin- offs and underwriting of equity offerings and high-yield "junk" bond issues to either pay for M&A deals, restructure balance sheets and/or to raise capital for further expansion.

Merrill Lynch estimated that more than 65 telecommunication companies world-wide are potential issuers of equity deals larger than $250m, totalling as much as $87bn worth of equity raising in the next three years.

AT&T is about to spin off its equipment arm, Lucent Technologies Inc, so it can continue to provide equipment tocompetitors without any conflict of interest. The spin-off involves an estimated $3bn (about 15 per cent) initial public offering of Lucent's capital in March or April. The deal, lead-managed by Goldman Sachs and Morgan Stanley, could produce $100m to $150m in fees for managers and underwriters of the flotation.

News
news

Emergency call 'started off dumb, but got pretty serious'

News
people

Britain First criticised for using actress's memory to draw attention to their 'hate-filled home page'

Arts and Entertainment
Liam and Zayn of One Direction play with a chimpanzee on the set of their new video for 'Steal My Girl'
music

Animal welfare charities have urged the boy band to cut the scenes

News
Russell Brand was in typically combative form during his promotional interview with Newsnight's Evan Davis
people

Thought you'd seen it all after the Jeremy Paxman interview?

PROMOTED VIDEO
Arts and Entertainment
On The Apprentice, “serious” left the room many moons ago and yet still we watch
tv

Greatest mystery about the hit BBC1 show is how it continues to be made at all, writes Grace Dent

Voices
Funds raised from the sale of poppies help the members of the armed forces with financial difficulties
voicesLindsey German: The best way of protecting soldiers is to stop sending them into conflicts
Arts and Entertainment
A scene from David Ayer's 'Fury'
film

"History is violent," says the US Army tank commander Don "Wardaddy" Collier

News
The Edge and his wife, Morleigh Steinberg, at the Academy Awards in 2014
peopleGuitarist faces protests over plan to build mansions in Malibu
News
peopleFox presenter gives her less than favourable view of women in politics
Property
One bedroom terraced house for sale, Richmond Avenue, Islington, London N1. On with Winkworths for £275,000.
property
Sport
Erik Lamela celebrates his goal
football

Argentinian scored 'rabona' wonder goal for Tottenham in Europa League – see it here

Voices
Nigel Farage has backed DJ Mike Read's new Ukip song
voicesNigel Farage: Where is the Left’s outrage over the sexual abuse of girls in the North of England?
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
News
Mario Balotelli has been accused of 'threateningly' telling a woman to stop photographing his Ferrari
peoplePolice investigate claim Balotelli acted 'threateningly' towards a woman photographing his Ferrari
Arts and Entertainment
Paul Anderson plays Arthur Shelby in Peaky Blinders series two
tvReview: Arthur Shelby Jr seems to be losing his mind as his younger brother lets him run riot in London
Voices
Don’t try this at home: DIY has now fallen out of favour
voicesNick Harding, who never did know his awl from his elbow, is glad to see the back of it
Arts and Entertainment
Miranda Hart has called time on her award-winning BBC sitcom, Miranda
tv
Sport
Phil Jones (left) attempts to stop the progress of West Bromwich Albion’s James Morrison on Monday
Chelsea test can be the making of Jones and Rojo, writes Paul Scholes
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

CTO / Chief Technology Officer

£100 - 125k: Guru Careers: A CTO / Chief Technology Officer is needed to join ...

COO / Chief Operating Officer

Competitive (DOE): Guru Careers: A COO / Chief Operating Officer is needed to ...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker