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Increasing competition across the global Telecommunications Services Industry is prompting consolidation in the major wireline and wireless segments. Large European carriers have been more active overseas than their U.S. peers, acquiring assets in high-growth developing nations. Small telecoms based in emerging markets, meanwhile, are merging to improve their operating and competitive positions and gain enhanced bargaining power in the event of a takeover bid. Below, we provide a glimpse of this expansive scene.

In the developed U.S. services industry, competition in the wireline sector is keen. A rising number of customers are turning to mobile wireless and the Internet for their main means of communication. By combining operations, wireline companies immediately gain scale, which can be considerably levered with a smaller back office at the bottom line. Too, substantial savings can be realized with regard to capital outlays. Though increasing revenue is a challenge, these companies can maintain a rich cash flow and a high dividend payout to investors.

Windstream Corp. (WIN), the former wireline subsidiary of Alltel, is a good example of a domestic consolidator. Since going independent in 2006, this telco has completed eight acquisitions, bringing in an additional $2 billion in revenue and $200 million in operating income a year. The deals involved other local exchange carriers, broadband assets, fiber networks and technology (e.g., Web hosting) companies. Windstream, itself, could potentially join forces with another wireline telco of similar or larger size.

One major wireline transaction now in the works is the $25 billion merger of Qwest Communications (Q) and CenturyLink (CTL). The companies estimate $625 million in eventual yearly cost savings. In the domestic wireless sector, there are no big pending deals, but Leap Wireless (LEAP), MetroPCS (PCS), and Clearwire (CLWR) appear worthwhile buyout candidates for integrated market leaders AT&T (T – Free AT&T Stock Report), Sprint Nextel (S), and Verizon Wireless, a Verizon Communications (VZ – Free Verizon Stock Report)/Vodafone (VOD) venture. Sprint would be the most likely suitor of Clearwire. Given the associated significant political, regulatory, economic and business risks, it seems that serious U.S. telco interest in foreign markets will take a few more years to develop.

All of the major European telecoms, however, have significant stakes in overseas markets. BT Group (BT) has holdings in Europe, Africa, the Middle East and the Americas. Deutsche Telekom (DTEGY) has an international presence, most notably in Europe and the United States. (via T-Mobile USA). France Telecom (FTE) serves customers in France, Spain, the United Kingdom, Poland and other nations. Telefonica (TEF) is a key competitor in Spain, Portugal and several Latin American countries. Vodafone, aside from Verizon Wireless, has substantial assets in Spain, Germany, Italy, the United Kingdom, and India.

The most attractive telecom growth markets in the world are wireless, and reside in Latin America, Eastern Europe, Africa, the Middle East, and Asia. Nearly every country in these regions has garnered interest from western telco giants. Among those capturing hefty investment are Brazil, Argentina, Chile, Peru, Poland, Russia, Kenya, Nigeria, South Africa, Kuwait, Saudi Arabia, United Arab Emirates, India, and China.

Aside from having to compete against each other in lucrative overseas markets, the large European telecoms have to deal with other well-heeled foreign contenders. Examples are: Vivo Participacoes (VIV), of Brazil; Bharti Airtel (India); Essar Group (India); America Movil (AMX), of Mexico; NII Holdings (NIHD), also of Mexico; MTN Group (South Africa); Cell C Ltd. (South Africa); Mobile Telecommunications Co., a.k.a., Zain, (Kuwait); VimpelCom (VIP), of Russia; Emirates Telecom. Corp., or Etisalat, (UAE); and Millicom Int’l Cellular (MICC), of Luxembourg. Of these telcos, Bharti, Essar, Etisalat, VimpelCom, and America Movil have been aggressive acquirers of assets, while MTN and Millicom have been considered appealing takeover targets.

A fair number of urban markets around the world already have one, or more, established service providers, and competition and the need to consolidate are intensifying. Networks are expanding into suburban and rural areas, but returns on invested capital for the telcos in these territories are not as great. Small players are being gobbled up or pushed out of the market altogether. Consolidation is most prevalent in Africa, the Middle East, and India, where there are many niche operators. Notably, Etisalat is working to close a deal to purchase a 46% stake in Zain.

There’s much opportunity in the high-growth developing-nation telecom segment for the most venturesome and risk-tolerant of investors. The more-typical investor, wanting to benefit from this sector and willing to overlook above-average price volatility, may consider stakes in America Movil and NII Holdings, which offer worthwhile long-term appreciation potential. Those who are conservative can also participate in this attractive market via holdings in the stable income stocks of Vodafone, Deutsche Telekom, Telefonica, and Telefonos de Mexico (TMX).

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.