The telecoms industry has given people a lot to talk about in recent months. The saga of the merger between US telecom giants Sprint and T-Mobile continues to play out, with the fate of the proposed merger now in the hands of the courts. The 5G network has been introduced by some telecom companies in select areas with the hopes that it will eventually become the industry standard. And let us not forget that China-based telecom company Huawei has been banned in the US over concerns of spying and ties with the Chinese Government.
Amid such events, the North American telecoms industry has reached a critical juncture. In April 2018, T-Mobile and Sprint announced their intention to merge, setting off a debate over antitrust law that continues to this day. Recent articles from The New York Times and The Washington Post report that the merger is nearing approval by the US federal government, despite antitrust concerns. It is possible that this consolidation could negatively affect the North American infrastructure telecoms sector – which tends to raise fewer funds and secure less capital when compared to the rest of the world: any attempts at innovation among smaller telecom companies may well be stifled, as ideas are snatched up by the behemoth companies dominating the market.
After a recent surge in telecoms fundraising in the region, which tripled North America’s previous annual record, could such a move bring this new momentum to a standstill?
North America’s Successful Year
Globally, with the exclusion of North America, $147bn has been raised for investment in the telecoms sector through 136 unlisted infrastructure funds that have closed since 2009. In contrast, North America-focused funds secured one-third of this amount during the same timeframe, with $49bn raised through 39 vehicles. Significantly, over half ($27bn) of the capital raised for North America-focused telecom funds in the past decade was secured in 2018. In fact, 2018 was the only year in which North America-focused telecoms fundraising eclipsed that of the rest of the world, as seen in the chart below. Five multibillion-dollar fund closures drove the North American telecoms industry to this record; the largest, Stonepeak Infrastructure Partners III, achieved its hard cap of $7.2bn in July 2018.
Outside North America, 2018 was a record year for telecoms fundraising in general, and figures for H1 2019 are larger still; fundraising for the rest of the world has already broken the annual record and will likely continue to climb. Eight funds in the rest of the world have closed and raised an aggregate $28bn thus far in 2019, including EQT Infrastructure IV, which will invest $10bn in telecoms and utilities, among other infrastructure projects.
The story of H1 2019 was decidedly more subdued in North America, though, as only half the number of telecom funds closed as in the rest of the world – at $2.0bn, the total capital raised equated to only 7% of the total for the rest of the world. The largest of the four North America-focused telecom funds closed so far this year is the $900mn core-plus Grain Communications Opportunity Fund II, which targets investments in wireless communication infrastructure.
Wireless Deals and the Rise of 5G
Wireless communication is a critical sector of the telecoms industry, especially since telecom companies are vying to bring a 5G network to their consumers. Verizon and Sprint have already begun to roll out their 5G networks, though some are still in the trial phase, and T-Mobile announced that its foray into the 5G landscape would begin at the end of June 2019. Back in 2018, 18% of North American telecom deals were made in the wireless communication sector, and the sector represents 8% of the total thus far in 2019. Wireless communication deals in the rest of the world have accounted for 9% of telecom deals in 2019 YTD, up from 7% in 2018, as 5G networks work to gain footholds across the globe.
The US’s national security order ban on Huawei, the world’s largest telecoms supplier, comes amid the threat of goods and intellectual property trade war between China and the US. Because the company has close ties to the Chinese Government, the US Government fears that the technologies and products Huawei provides to foreign consumers could be used for spying purposes. As the US banned companies from using Huawei networking equipment back in 2012, there is not a large presence of Huawei products in the country – the North American telecoms industry is not likely to suffer a significant repercussion from the ban.
Despite the negative press that has surrounded parts of the telecoms industry, interest in the sector does not appear to be slowing down. With 59 funds in market looking to raise a combined $60bn, the North American telecoms industry has not yet been disconnected, although it still lags the $165bn fundraise targeted by the rest of the world. North America still has room for innovation and growth as global communication increases and consumers call for better coverage and connection. The 5G landscape offers an opportunity to capitalize on the next level of speed and communication, leaving investors with plenty to talk about.
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