Over the past decade, the global telecoms sector has experienced boom and bust. Now, though, a new world order is emerging
that presents significant opportunities and challenges for law firms.
Demise and re-emergence of new entrants
During the boom, many firms preferred dynamic new entrants to lethargic incumbents as it was often possible to represent several new entrants, whereas representing an incumbent generally meant conflicts.
Most new entrants, though, suffered badly during the telecoms downturn, with many gone forever and others only just surviving.
Some of the surviving new entrants
have now re-emerged debt-light, thereby presenting a threat to their competitors.
After the telecoms crash, many firms that had preferred new entrants found themselves client-light. The re-emergence of some new entrants now presents opportunities for such firms to replenish their client bases.
Most of the European incumbents were also affected badly by the telecoms downturn, although none went under. Over the past few years, most of the incumbents have repaired their balance sheets and credit ratings, with their competitive position also being strengthened by the woes of the new entrants.
Several European incumbents (Deutsche Telekom, Telekom Austria, Telenor and Telefonica) have evinced an appetite for renewed acquisitions and international expansion, particularly into emerging markets. And BT, which retrenched internationally during the downturn, recently bought Infonet, one of the largest global data network operators.
Firms that once shunned incumbents are now courting them. A particular attraction is the vertically integrated structure of most incumbents, which provides an opportunity to work for their fixed, mobile, data and internet service provider operations.
Mobile buoyancy and alliances
During the boom, many mobile operators assumed enormous debt to buy third-generation (3G) licences. Most have now repaired their balance sheets and many are looking at new licences and acquisitions. For example, the Saudi global system for mobile (GSM) auction last year attracted multibillion-dollar bids from leading operators.
There is a trend towards mobile alliances, inspired variously by the desire to create collective market strength viz-à-viz competitors, enhance bargaining power for equipment procurement, streamline international roaming arrangements and establish harmonised technology and content platforms.
These alliances generate complex corporate, regulatory, commercial, competition and IP work for firms. The history of the sector, however, is littered with ill-fated alliances (eg Global One and Concert), and it will be interesting to see how these new alliances fare.
Extensive liberalisation and new regional operators
Although the UK, Continental Europe, North America and Australasia have been liberalised for many years, it is only recently that extensive liberalisation has swept through the rest of the world, creating a new breed of dynamic regional operator.
Many are creating significant opportunities for cross-border M&A, financing, capital markets and litigation work for law firms. It is no coincidence that most of the largest recently announced or completed telecoms IPOs – including Hutchison, Sistema, China Netcom and Celtel – involve operations in newly liberalised emerging markets.
The retreat of traditional Western operators during the downturn, extensive worldwide liberalisation and the rise of new regional players has caused a geographical shift in investment flows in the global telecoms sector. Instead of the traditional unidirectional investment flows (primarily from the US and Western Europe), investment flows are now regional and multidirectional.
For example, it would have been inconceivable even five years ago that four of the world’s most important submarine cable networks would have been acquired by Asian companies.
The increasing importance of China in the global telecoms sector is illustrated by the successful IPOs of the four major Chinese operators, the rapid international expansion of the two main equipment manufacturers (ZTE and Huawei) and by China taking a stake in the EU’s ‘Galileo’ satellite system.
There has also been a technological shift to Asia, with the traditional US/European stranglehold over telecoms technology under threat. It is significant that 3G is a vibrant reality in Japan and South Korea while it is just starting in Europe and is almost nonexistent in the US. Also, China has decided to develop its own 3G standard and has even entered into an agreement with Japan and South Korea to develop 4G technology.
This geographical shift in investment flows and technology raises important resource issues for law firms. It is now much more important to have telecoms expertise in multiple key locations.
Private equity enthusiasm
The telecoms downturn saw a big increase in private equity enthusiasm for the telecoms sector due to the withdrawal of traditional Western investors, the drop in asset values and increased distressed sales.
This trend favours law firms with strong private equity and telecoms capabilities.
The global telecoms sector has witnessed a surge in disputes over the past few years because of failed boomtime investments, the mushrooming number of operators worldwide due to extensive liberalisation and newly-created telecoms regulators asserting their independence. These are the three main types of dispute.
In addition, in 2004, the first World Trade Organisation (WTO) telecoms decision, Mexico v the US, suggests a possible fourth category: government v government disputes, with operators lobbying their respective governments to take action under the WTO.
This trend favours firms with strong litigation/arbitration and telecoms capabilities.
The global telecoms sector has changed out of all recognition over the past few years. Many law firms were wrongfooted by the telecoms boom and bust. This time round, to reap the benefits of the new world order, law firms will need to be particularly adept
at adjusting their client, conflicts and resourcing strategies to reflect the trends.
Tim Schwarz is a telecoms partner at Linklaters