Do you know the next big telecommunications players in Australia?
The sudden takeover bid for iiNet Limited (ASX: IIN) by TPG Telecom Ltd (ASX: TPM) earlier this month stepped up the speed at which the telecom space is consolidating at. This could open up a variety of opportunities for investors.
Telstra
No small or mid-cap company is going to budge telecom giant Telstra Corporation Ltd (ASX: TLS) from its number one position. It still has the biggest phone, mobile and internet network. Could it step in and make a rival offer for iiNet above TPG Telecom's $8.60 per share bid? Most likely, if it was interested, but Telstra is turning its view towards larger markets in the Asia region to develop an international cloud application service for business enterprise.
TPG Telecom
TPG Telecom has been the most active recently in assembling an extensive broadband and telecom network to rival the NBN in urban areas. iiNet would be a logical addition since the number two internet service provider has about 60,000 NBN subscribers. TPG is a $7 billion company, whereas iiNet stands at $1.4 billion.
iiNet
The company at the centre of the takeover previously was growing at double digits and has made several recent acquisitions to beef up its revenue and subscriber numbers. However, in financial year 2014, earnings only gained 7.5%. Analysts were forecasting mid single-digit earnings growth in the next few years as well. Steady organic growth has been difficult, so past the acquisitions, business started to slow down. That's when TPG Telecom moved in with its opportunistic bid.
Vocus Communications
Back in December, Vocus Communications Ltd (ASX: VOC) offered a merger deal with Amcom Telecommunications Limited (ASX: AMM). It looked like TPG Telecom might make a bid itself because Amcom has its own network infrastructure in WA that would be a good addition to TPG Telecom's. TPG didn't make an offer, but it did buy a 6.7% stake in Amcom. Sydney-based Vocus Communications' tie-up with Amcom would give it a much wider telecom network and the merger should be complete by April.
M2 Group Ltd (ASX: MTU) is a $1.9 billion internet service provider that also offers utility and insurance services. Although it may be interested in iiNet for its own future growth, it made acquisitions in Dodo Australia and iPrimus in the past three years, so it is still integrating the two businesses. It may be a stretch financially to go for iiNet currently.
Of these telecom stocks, I prefer TPG Telecom. It can still increase its bid if necessary, but a rival bidder doesn't seem to be entering. It just announced its half-year profit was up 18% from a remarkable rise in revenue. Over the mid-term, it possibly has the best potential for growth.
