M2 Telecommunications has been on the acquisition trail. Last year, it paid AU$192.4million for Primus. Now it's bought Dodo for around AU$204 million. This week, it hopes to settle an AU$44 million bid for Eftel. It's an aggressive stance for a company that, just a few years ago, was only bringing in AU$200 million in revenue each year and making just AU$7 million profit. The new deal will see its revenue grow by AU$400 million over the next 12 months — which is much needed, given its flat-line revenue figures over the last few years. With Dodo's demonstrated ability to grow organically, it'll be hoping to see further rises in successive years.
Even though it's rarely mentioned in the same breath as TPG and iiNet, M2 is a fairly big business. In terms of the company's value — approximately AU$909 million, according to Yahoo Finance — it is now just a little below iiNet's enterprise value of AU$1,110 million. When it comes to revenue, however, it still has a way to go to reach TPG and iiNet levels and be considered as part of that second tier of telco providers.
Add that expected AU$400 million of instant growth to M2, though, and catching up with TPG isn't beyond the realms of possibility.
Revenue isn't what counts, of course. Profit is the end game, and, as a reseller predominantly, M2 will find it much harder to reach TPG's AU$91 million annual profit — more than iiNet and M2 combined. It highlights the benefits of operating your own network and diversifying your product set. It also demonstrates that we can expect more consolidation before too long, as resellers struggle to survive and get scooped up by infrastructure owners keen to sweat their assets.
Even so, further manoeuvring is going to do nothing to change the shape of the industry. TPG might be turning out a decent profit, but it's still just 3 percent of what Telstra managed last year. The second tier, below SingTel and Telstra, are all minnows in a pond dominated by the big two players. Successive waves of consolidation aren't going to change that.
Sadly, the National Broadband Network (NBN) will not have much of an impact, either. The playing field will be level, but Telstra will jump onto it with 30 times the revenue of iiNet and 90 times its profit. There will be almost as big an earth tremor when Optus lands on the playing field, with SingTel's group profits now bigger than Telstra's.
All in all, it means that whatever consolidation occurs, it'll do very little to shape consumer choice or product pricing.