Telecom consolidation: not a piece of cake

Even though Telenor has grown to become the second largest mobile operator in Pakistan since it started operations in 2005, it seems to be still hungry for more.
At a market share of 25 percent (by revenue), second to Mobilinks 38 percent (by revenue), the CEO of Telenor, Jon Fredrik Baksaas, is strongly advocating a consolidation of the mobile market of Pakistan, claiming it to be too fragmented for mobile operators to reap full earning potential of the market.
While rumours regarding a possible consolidation between some key players abound, and talks of who will acquire whom are already swerving the heads of telecom experts, why hasn any sound step been taken in the said direction is what makes one scratch ones head.
In wake of the fact that the bottomline of most of local cellular firms have been in red, a merger is believed to beef up their numbers, and consequently make their shareholders happy. But the picture is not as rosy as it seems.
For a majority of these operators, highly leveraged balance sheets is one of the biggest deterrents, as a consolidation is not only going to be a combination of their assets and resources, but also of their debt and other liabilities.
The scenario is further complicated due to the dilemma of the licensing fee. In case of a merger and the creation of a new company, the two operators would like the licensing fee of at least one of the operators refunded.
As paradoxical as it sounds, mobile operators fear that the licensing fee dispensed in the past would be rendered a wasteful expense if not refunded; whether the PTA will yield to this demand or not is anybodys guess.
People involved in the telecom sector, who often paint it as having colossal synergies, have also over played the benefits of a merger, often at the cost of not highlighting the downsides.
Disputes on management control, laying off of redundant employees, conflict of objectives, personal interests of top managers, etc are some of the shortcomings of a probable consolidation that have kept the companies at bay from each other so far.
Consumers, however, are likely to be on the receiving end of a possible merger. Sources in the telecom industry told BR Research that the expected gains from a merger are not speculated on the basis of a price increase, but on mostly a synergy of resources. Rather, it is believed that if anything, consumers will most likely benefit from better service quality.
Yet, it makes sense for mobile operators to explore other alternatives to a consolidation in order to cut down overheads and sundry other costs, infrastructure sharing being one good alternative.
The catch to the suggested measure, however, is sharing technological infrastructure and expertise rather than merely sharing towers, which operators in Pakistan are not too keen to do.
Another sensible measure is network outsourcing as is done by companies such as Mobiserve in the Middle East and Africa. According to a representative of a local telecom company, "This shouldve been done a long time back. It is more difficult now as barriers to entry have been set up for a new entrant as space for network infrastructure has become heavily saturated."
Overall, industry sentiment points to a consolidation being inevitable, though when this will happen is not as certain. But the path to a possible merger is not without its bumps and boulders, and other alternates should be borne in mind at the same time.