CAT TELECOM AND TOT MERGER - CPaaS Will value be added? Market consolidation and emergence of new players - Value Partners
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TMT M&A NEWSLETTER 1Q2020
CAT TELECOM
AND TOT MERGER
Will value be added?
Stefano Sorrentino, Adriano Giaquinta, Chin San Ng
CPaaS
Market consolidation and emergence
of new playersCAT TELECOM AND
TOT MERGER
In Jan 2020, the Thai government ap- • The merger also provides CAT and
proved the merger of state enterprises TOT with the opportunity to establish
CAT Telecom and TOT to form a new a more comprehensive portfolio of
company, National Telecom (NT). products and services. For exam-
The merger is hoped to better pre- ple, NT will own both domestic and
pare and equip CAT and TOT for rapid international telephony assets, allowing
changes in technology and the telecom it to offer a more complete suite of
industry by allowing both CAT and TOT connectivity services. NT will also have
to explore future business opportunities a larger network due to the consolida-
together. The two operators currently tion of CAT and TOT’s tower, site, fiber,
have a small consumer market share, spectrum, and data centre assets,
and generate most of their revenue allowing it to provide better coverage
from concession agreements with other and a higher Quality of Service (QoS).
domestic telcos.
• The merger may enable CAT and TOT
The merger presents CAT and TOT to offer higher quality 5G, across the
with a number of opportunities low, mid, and high spectrum bands. In
and synergies, both on the revenue and addition to the faster speeds, higher
cost-sides. On the revenue side: bandwidth capacities, and wider
coverage that consumers will enjoy,
• CAT and TOT may explore new the rollout of 5G by NT may also help
revenue streams from infra-sharing accelerate 5G adoption in Thailand,
and digital services, by leverag- and support the Thai government’s
ing their infrastructure assets. NT’s Thailand 4.0 initiative.
combined tower footprint of ~35,000
sites and >3 Million Core-Km of fiber Cost-side synergies include:
will provide more comprehensive
coverage for customers. NT’s com- • Cost-savings from the elimination
bined spectrum holdings in the low of duplicate CAPEX investments
(700MHz AND 850MHz from CAT), (e.g. towers and sites in similar loca-
mid (2100MHz and 2300MHz from tions, spectrum in similar bands,
TOT), and high (26GHz from TOT) duplicate 5G network equipment, low-
bands could also allow it to deploy er maintenance and upgrading costs,
5G more reliably and with a higher etc.). NT will have a larger portfolio
Quality of Service (QoS). Due to the of assets including but not limited to
expiry and termination of CAT and spectrum bands, tower and site as-
TOT’s concessions with the other sets, fiber, and data centres. Without
MNOs (True, AIS, and DTAC), these the merger, CAT and TOT may each
new revenue streams would also need to invest in additional towers to
improve the sustainability of their increase coverage, or data centres to
business models. increase capacity. The merger may
eliminate this unnecessary additional
expenditure by either party.
2 TMT M&A NEWSLETTER 1Q2020• Cost-savings from the streamlining of • CAT and TOT face uncertainty
duplicate or unnecessary operations regarding their spectrum use rights
(e.g. duplicate functions, headcount, after the merger. One solution is cur-
staffing positions, processes, systems, rently being explored: whether TOT
etc.). As a newly formed entity, NT and CAT can each use existing spec-
may be able to combine roles and trum until 2025 under their previous
responsibilities, re-organize teams and deal after the merger (to be decided
departments, restructure management by the Thai telecom regulator NBTC
and reporting lines, and align company by Nov 2020).
SOPs and processes, so as to improve
efficiencies, and align the company to- • CAT and TOT also have unresolved
wards NT’s new objectives and targets. existing legal disputes between
For example, tower and cell site main- themselves and between TOT and
tenance costs may be reduced, since other private companies, which are
only one maintenance team is required still held up in multiple ongoing court
to service one tower or site per cell, as cases (to be clarified by Office of the
opposed to two separate teams before Attorney-General).
the merger (CAT and TOT).
• CAT and TOT have a large number
• Better economies of scale, leading to of employees (CAT with ~12,000+
reduced procurement costs. With a and TOT with ~5,000+) that would
larger asset base, NT will potentially be costly to lay-off, and who will also
be able to benefit from lower prices have to be restructured into the new
from network equipment vendors, NT entity.
suppliers, and contractors.
The strength of the merged entity NT
However, CAT and TOT are likely to lies in its infrastructure assets. Whether
face some challenges during and after NT will become a pure infra-sharing
the merger. provider, or a hybrid player in multiple
verticals remains to be seen. What is
• CAT and TOT will need to integrate certain though, is that if it succeeds, the
their organizational structures. In ad- merger of CAT and TOT is likely to have
dition to restructuring their existing a significant and long-lasting impact on
companies, both companies will also the telecommunications landscape in
need to accommodate a new busi- Thailand.
ness unit under NT’s management
structure to capitalize on digital and
innovative development, as request-
ed by the Thai Digital Economy and
Society (DE) Ministry.
• CAT and TOT may encounter some
chain-of-command complications
and potential friction among managers
about their roles in the merged compa-
ny. CAT and TOT will need to combine
their existing management structures,
and rearrange current management
positions. Some units from CAT and
TOT may also be made redundant.
3 TMT M&A NEWSLETTER 1Q2020CPaaS
1
Gartner The telecommunications industry is The global CPaaS market is expected
entering a new era of digital transfor- to reach ~USD 17.2 Bn by 2023, a CAGR
mation. Technologies such as cloud of ~39% from ~USD 3.3 Bn from 2018
computing have enabled new use cases, (Exhibit 1).
products, and services. Communica-
tions Platform as a Service (CPaaS) This rapid growth in the CPaaS market
vendors are one of the beneficiaries of is driven by 5 main factors: The increas-
this technological revolution. CPaaS ing adoption of CPaaS solutions by
players “offer application leaders a companies across various industries,
cloud-based, multilayered middleware the increasing integration of new prod-
on which they can develop, run, and uct and service segments (e.g. video
distribute communications software. and email), the development of new
The platform offers APIs and integrated use cases for CPaaS across different
development environments that sim- industries, e.g. chatbots in e-commerce,
plify the integration of communications IoT in logistics etc., the improving en-
capabilities (for example, voice, mes- gagement of enterprise developers (e.g.
saging and video) into applications, via social media, video & email notifica-
services or business processes.” 1 tions) with innovative digital solutions
for customer engagement, and the
migration of communication services to
the Cloud to increase delivery rates and
speed at reduced cost.
EXHIBIT 1
Global CPaaS market, USD billion
CAGR
17.2
+39% 12.4
8.9
6.4
4.6
3.3
2018 2019 2020 2021 2022 2023
Source: IDC (International Data Corporation), Value Partners analysis.
4 TMT M&A NEWSLETTER 1Q2020In general, CPaaS players include both In recent years, the CPaaS market has
telecom operators and CPaaS com- undergone significant consolidation.
panies. Telecom operators have more For example, in 2015, Cisco entered
control over connectivity infrastructure, the CPaaS market via its acquisition of
supply, and quality, and have a regula- Tropo for an undisclosed sum. Cisco
tory advantage as industry incumbents. has since integrated Tropo within its
However, they do not yet have the Cisco Webex development hub. In 2016,
capabilities to build and provide their Vonage acquired Nexmo for ~USD 230
own communication APIs (without ac- mn, primarily to bolster its position and
quisitions). Therefore, as seen in Exhibit increase its capabilities in the market.
2, the CPaaS market is still currently 8x8’s acquisition of Singapore-based
dominated by CPaaS companies. Wavecell in 2019 for ~USD 125 mn pro-
vided it with access to the fast-growing
CPaaS companies can provision ser- Southeast Asian market, and a more
vices via APIs, serve as one-stop shops comprehensive API product portfolio.
for developers, and are pioneers in the
“Programmable Telecoms” space. In December 2019, MessageBird
However, they have little or no control acquired Telserv for an undisclosed
over their connectivity supply and amount, expanded its SMS, voice, and
quality, and face high barriers to entry chat solutions to include Telserv’s
if they wish to become full-fledged virtual numbers platform.
operators.
EXHIBIT 2
Total CPaaS market, USD million, 2019
~4,600 ~1,500
THE CPAAS MARKET IS LARGELY DOMINATED BY U.S. INCLUDING VOXBONE, ZIPWHIP, 8X8
AND EUROPE-BASED PLAYERS (ACQUIRED WAVECELL IN 2019), INFOBIP, ETC.
~400
~300
~250
~200
~150
~50 ~20 ~1,800
TOTAL TWILIO VONAGE* IMIMOBILE BANDWIDTH MESSAGE-BIRD SINCH PLIVO AVAYA OTHERS
(PREV. CLX COMMS.)
Source: IDC, Company financial reports, Synergy Research Group, Value Partners analysis.
Note: (*) Acquired Nexmo in 2016.
5 TMT M&A NEWSLETTER 1Q2020As shown, most acquisitions in the A large majority of CPaaS players are
CPaaS market are undertaken to enter from the US or Europe, where the mar-
new markets, consolidate market posi- ket is more mature (Exhibit 2). Twilio
tions, and enhance the acquirers’ prod- and Vonage are the largest CPaaS play-
uct portfolios. CPaaS players, rather ers in the US, with Twilio having a ~33%
than telecom operators, have also been share of the market. The top 5 players
much more active in the M&A market, globally make up ~60% of the total
since it is more likely that CPaaS players CPaaS market.
recognize the value and growth that is
happening in the market, and telecom In the APAC region, the CPaaS market
operators have recently prioritized other is more fragmented and less developed
digital transformation verticals such as compared to the US or Europe. CPaaS
media & content, cloud computing, and players in Asia will need to connect
cybersecurity (see Value Partners’ July directly with each MNO in each market,
2019 Perspective titled “Leveraging and manage each of these relationships.
Digital Technologies to Achieve New Conversely, in the US and Europe, there
Growth: How Should Telcos Act?”). are companies which serve as aggrega-
tors for incoming traffic, and offer rea-
CPaaS players are also seen to benefit sonable pricing structures for capacity.
their customers by enabling enterprises In addition, the APAC region also has a
to scale quickly into new market seg- more fragmented telecoms regulatory
ments through affordable, cloud-based structure than the US or Europe. Many
APIs. countries in Asia have less comprehen-
sive CPaaS-specific regulations, with
Virtual numbers, SMS messaging and few pricing guidelines or incentives for
voice-based APIs enable enterprises MNOs to collaborate with CPaaS players
to communicate and engage with their for example.
customers directly, and since it is cloud-
based, allows enterprises to provide the
same (or better) services without the
need for expensive landlines or physi-
cal infrastructure investments. APIs
also allow a faster rollout of customer-
centric features without high in-house
development costs, accelerating the
digital transformation process of many
B2C players.
The top 5 players globally
make up ~60% of the total
CPaaS market, and none
of them is Asia-based.
6 TMT M&A NEWSLETTER 1Q2020On the other hand, this fragmentation in To differentiate itself from other CPaaS
the APAC market has opened the door players, Toku positions itself as having
for new players in the CPaaS market. both a high control over connectivity
New entrants such as Toku, a Singa- supply, as well as a high level of hybrid
pore-based CPaaS start-up aiming to expertise (as a licensed operator and
close a series-A funding round this year, digital service provider) (Exhibit 3).
offer wholesale and network connec-
tivity gateway services for enterprise The trend of consolidation is likely
customers such as Gojek. to continue as the market continues
to develop and mature. In the APAC
region, partnerships between telecom
operators and CPaaS players are also
likely to increase as telcos look to enter
the growing CPaaS market. Given the
increasing demand for better, more
modern, and higher quality commu-
nications services, especially in Asia,
the future of the CPaaS market looks
promising.
EXHIBIT 3
APAC landscape and the emergence of CPaaS aggregators
MNO 1 MNO 2 MNO 1 MNO 2
COUNTRY 1 COUNTRY 2
CAPACITY AND CONNECTIVITY
CPaaS AGGREGATORS / HYBRID TELECOM-CPaaS MODEL (E.G. TOKU)
INTERNATIONAL TRAFFIC CONNECTIVITY
MNOs PURE CPaaS PLAYERS (E.G. VONAGE / NEXMO) APIs
APIs
ENTERPRISES (E.G. GOJEK)
7 TMT M&A NEWSLETTER 1Q2020ABOUT
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Written and edited by: associations, service providers, and Stefano Sorrentino
Stefano Sorrentino, strategic investors. Partner, Hong Kong office
Adriano Giaquinta, stefano.sorrentino@valuepartners.com
Chin San Ng We also possess one of the largest TMT
practices worldwide, as we collaborate Adriano Giaquinta
For more information
with the leading Telecom, Media, and Engagement Manager, Hong Kong office
on the issues raised in
Content players globally, on projects that adriano.giaquinta@valuepartners.com
the report please contact
span the full universe of telecom & media
the authors
technologies – fixed, wireless, broad- Chin San Ng
If you would like to subscribe band, satellite, broadcast – and range Associate, Hong Kong office
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mailing list please write to: launch, market entry, strategic alliances,
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