Telecom carriers become attractive target for acquisitions again

Implications: After over half a decade of no interest, financial institutions are taking another look at telecom carriers as attractive target for M&A. Nationalism - local investors see incumbent telecom carriers as a national asset trying to block if from falling into foreign hands.

Analysis: Incumbent telecom carriers that have done very well for several decades and even survived the burst of the Internet bubble are beginning to feel the "heat" of new technologies and new carriers taking away customers and revenues. The income these ILECs generated before from voice communications is going to wireless carriers and VoIP providers while fresh new revenues that are supposed to be generated by new video services are late to arrive mainly due to the major capital investment needed and slow technology evolution and maturity. In this environment, large solid incumbent carriers become the target of buyouts and M&A.
M&A by other large domestic or foreign telecom carriers create market consolidation and decrease competition. In some cases (when there is no strong domestic telecom carrier candidate for horizontal takeover), the only potential buyer is a foreign entity which causes resistance by local government and local investors who call other domestic verticals to form consortiums to "save" the incumbent telecom carrier from falling into foreign hands.
The case of BCE was triggered by a consortium led by the US based buyout firm KKR which almost "forced" the local Canadian pension funds to look for a financial backer and "save" Canada's largest carrier from falling into foreign hands. Even the Canadian regulatory barrier would not stop KKR from controlling Bell Canada from behind the curtain.
It is hard to ignore a similar case that has been in the news in the last few weeks: the giant Italian tire manufacturer Pireli is trying to divest itself from 80% participation in Olimpia - the holding company that controls the Italian incumbent telecom carrier Telecom Italia. AT&T and the Mexican America Movil/Telmex has been jointly bidding for it. Objections expressed by the Italian government caused AT&T to pull out with America Movil / Telmex still in the race to control Olimplia. Telefonica from Spain is also very interested in Telecom Italia. There have been rumors that the Italian government is trying to convince some local banks and other Italian institutions to form a consortium to submit a bid. Even through Telecom Italia is probably better off being acquired by horizontal buyer from its own industry, the government does not want to let go from something it defines as a national strategic asset (and prefer that it would go to the hand of financial vertical buyers that may not know how to operate it and may end up selling it down the line).