 Is JSA TV, the newsroom for tech and telecom professionals, and JSA radio, your voice for tech and telecom on iHeart radio. I'm Jengie Skado-Gutaya and on behalf of my team right here at JSA, welcome to our monthly virtual roundtable. We're bringing together top thought leaders, talking about topics important to our industry in our monthly virtual roundtable series, so welcome. You can find these roundtable series right here on our JSA TV YouTube channel, as well as on JSA radio. It's the only tech and telecom podcast series currently available on iHeart radio. These monthly roundtables lead us up to our onsite CEO roundtables at our industry networking event, the telecom exchange. Next one up, June 20th through the 21st, that's on Wall Street in downtown New York City. You're going to see more info at thetelecomexchange.com. Today's topic, getting right into it, M&A, reviewing the big deals of 2016 and some predictions that we may have in store for you for the new year. This topic has garnered a lot of interest on social media, as well as some top 10 lines lately. So, with all this excitement mounting, let's just get right to it. Welcome to our live audience here today, and thank you also to those who are watching on demand. This roundtable is brought to you on our JSA video platform, which allows our panelists to log in virtually from anywhere, and today we're actually spanning the country from New Jersey and Virginia all the way out to the West Coast and California, streaming live video feeds, care of our partners, the video collaboration managed service provider, Pinnacle. So, thank you Pinnacle, and let's get started. I'm honored to introduce our guest moderator and a really dear friend of mine, Rob Powell. He is, as many of you already know, the editor and creator of our industry's top blog, Telecom Ramblings. Rob has been a leading online media entrepreneur in our industry for years, writing about telecom and internet infrastructure sectors since 2008, and prior to that, prior to founding Ramblings, Rob spent about 10 years as a software engineer at Bethany Systems. He's also, we should say, a Princeton man, he's earned his master's in chemical engineering from Princeton. Rob's yearly and widely read and highly anticipated blog on telecom M&A predictions makes him really just the perfect guest moderator for today, as well as in June he'll be at our telecom exchange moderating around table there as well. So, Rob, thank you for being with us today, and please do us the honors. Thank you, Jamie, and welcome to everybody. In 2016, the consolidation train continued to roll forward as it has for many years now. We saw some of the biggest wireless providers looked into the content world. We saw the network infrastructure heavyweights getting heavier as they made multiple deals, and we saw some regional network operators backed by private equity adding a scale within an adjacent territory. Will we see the same kinds of trends in 2017, or will we see new trends take hold? With us today to talk about the M&As from last year, and perhaps the ones to come in 2017, are three esteemed panelists. I'm going to ask them each to quickly introduce themselves. Rick, you first. Great. Thank you very much, Rob, for having me back after last year. My name's Rick Calder. I'm the president and CEO of GTT Communications. We provide cloud networking services to multinational clients, connect people to any location and any application in the cloud, publicly traded on the New York Stock Exchange under the ticker GTT. Ed, you're next. Thanks, Bob. I'm Ed Maline. I am the TMT editor for Merger Market. We have about 400 reporters around the globe. I manage a group of reporters, three in San Francisco, one in Chicago, two in DC, and three in New York. We cover everything M&A related and regular charter related with regards to the sector. And Greg, you? Thanks, Rob. And good afternoon. Greg, we're Vertix Consulting. We're a management consulting firm focused on the telecom space, but really almost exclusively on the wireless space, advising our customers on a lot of different things, different types of acquisition transactions, but also merge integration, process improvement, and really just about anything involving their wireless networks. Thank you. So let's just dive right in. The first question I have for all three of you is that, what deal stood out to you in 2016? Were there any big surprises? Rick, let's start with you, since I know that you were intimately involved with one of those surprises. Yes, Rob. I remember we were on a panel last year at this time, and both GTT and Hibernia networks were guest. Bjorn Ithor Vardersen was one of your panelists. And at the end of the year, in November, we announced the acquisition of Hibernia or the announcement of signing the Hibernia acquisition. We closed that transaction in January of 2017, right, at the beginning of the year, and are very much involved in the integration phase. We think it's an excellent addition to our business, adding fiber capacity, own fiber capacity in the Atlantic, particularly the new Hibernia now GTT express cable, which provides the lowest latency and most differentiated fiber path in the Atlantic and the path between New York and London. So we believe we've added an excellent team and an excellent set of services, and we're excited about that addition to the GTT portfolio. We clearly have other interesting sort of acquisitions that have occurred, but let me allow the other panelists to talk and share some other comments later. Ed, what stood out to you this year? I think the movement from AT&T into the media space has to be the biggest surprise to me. You have the largest wireless, one of the largest wireless providers, you have one of the largest wire line providers. They're in the business of transporting megabits and gigabits, and now they want to get into the business of developing content. And it's an interesting step in the strategy to, well, how do you define your strategy in this period where you have massive change in how content is distributed and consumed? Greg, what stood out to you this year? Yeah, I agree AT&T Time Warner announcement was probably a little bit of a surprise, although they and Verizon have both continued to make plays for diversification, vertical diversification into content. Verizon XO is a phenomenal uphill for Verizon looking ahead. And although it didn't happen in 2016, technically, it was just announced this past week, the sprint buying a large stake in title, the streaming music service, I think it was a surprise and maybe a little bit of a head scratcher for some, but certainly continues that trend of the wireless carriers looking beyond traditional acquisition targets to grow a market share and looking at content. For me, I guess the biggest surprise overall was the level three CenturyLink deal. I didn't see that one coming at all, but certainly the biggest AT&T and Time Warner and Yaru and Verizon were very dramatic. What do you think the overall drivers of 2016 infrastructure M&A were? We have the move to content. What else is driving things, economics and new technologies? Something else? Rick? Well, I'll go on on to that comment about level three CenturyLink. One of the things that we observed about that, particularly when they announced it, was that it seemed very defensive, that we had two firms that were both shrinking top line, level three and CenturyLink, effectively merging for economies of scale, made a very major point about the economies that would get from the deal. I think similarly you saw the same thing happen with EarthLink and Windstream in terms of their merger, sort of defensive in scope in terms of the lack of top line growth and then the view to get scale economies to continue to save costs. As we announced, when we announced our deal, juxtaposed against offensive and aggressive moves to actually grow faster and what we believe to be a very fast growing market. I think you saw a lot of defensive moves last year and it will be interesting to see how that plays forward into 2017. What do you think the overall drivers are for last year in terms of other things? Clearly, last year was there defensive, not growing, we need to basically get scale economies and save money and costs and synergies, so we definitely saw that. We also saw the completion of the strategy of unwinding what was, in many respects, a failed strategy for large telcos to go into the data center and hosting space, so we saw the unwinding finally of Verizon TerraMark, we saw the unwinding of CenturyLink Savage, so I would hazard that we saw the acceleration of large telcos going into media, I just wonder whether that's the front end stage of the next strategy and to see how that will play out over the next three. Thanks. Ed, what do you think the drivers have been lately and how are they going forward? I think the trend, the pricing trend, just people consuming more and with amp or not ban with the round where you always have these very long term trends, whether it's Moore's law or the price compression storage, all that still weighs on a lot of companies. No matter what companies do, they have a difficult time maintaining pricing power, so I think they're trying to find ways where they can limit the revenue pressures or do deals to substantially manage the cost side. And then the other side, as what Rick was saying with regards to the data center space, you saw a lot of activity in private equity getting back into the data center space, so Apollo, I think if I remember correctly, Purchase Rock Space, and then Rick mentioned a few other deals, and private equity has played an important role in this, so the pricing pressure I think is still a big driver for us. Great. Great. What do you think? Yeah, wireless. I mean, in wireless, we've certainly seen a shift recently in the motivations of the carriers and the drivers. In the past, it was really focused on market share. You saw Leap and Metro. You saw a lot more consolidation of market share in wireless. But that absolutely shifted in 15 and certainly in 16. We look at probably two key drivers, the first being vertical integrations. We've talked about a little bit here, getting more into content and trying to avoid becoming that, quote unquote, dumb pipe. And then I think the second thing is really in establishing themselves for 5G. I think Verizon's acquisition of XO is a great example of that. I'm really trying to position themselves for the future. Forgetting about market share, but really the underlying infrastructure and the network, whether it's the high band spectrum that XO had or the fiber footprint, really positions them well for a full mobile 5G solution, even though maybe a few years out, the focus has really been on preparation for that. Great. Thanks. So could each of you tell us generally how the M&A landscape is playing out in your respective spaces this year, coming this year? What types of assets are hot now? What types of companies are the likely buyers? And what are valuations like right now? Rick? Right. I just wanted to take one second just to comment a little about the couple deals that we've spoken about ATT and their move into Time War media and Verizon, both first to AOL, obviously as they bought their pending acquisition of Yahoo. I think that this is accelerating a trend towards mobility, as Greg just mentioned, towards content. It's interesting. It's diversifying away from the core business of providing networking services, particularly to large enterprises. So from that perspective, and we've said publicly before, we applaud those moves. We think it's actually a very interesting move for them to move away from what has been historically the core of their business, to move into what are somewhat unrelated businesses, clearly very intentional to mobility. So it would be interesting to see how that plays out and whether content and other content becomes interesting. I do think that in terms of your last question, I continue to think that the four private equity and other players, the data center space, will be interesting to see how that plays out, not central to our strategy, but will be interesting. I also think there's a lot that has been a tremendous amount of activity, new business formation around the unified communications and voice over IP space. And so it will be interesting to see how that, whether there's more consolidation or change in that market. The more traditional hardware players have been struggling, obviously, of IAGE to declare bankruptcy. So it will be interesting to see how that service element of unified communications and VoIP plays out. A position to be small in today, but interesting and very important to enterprises of all sizes. Great. Ed? Well, I think the question will be how Verizon may have to respond to AT&T's move, Time Warner. I don't expect them to match a deal like Time Warner, but more strategically, if the deals they've done in 2016 or the last few years with AOL and with Yahoo and then other moves into telematics, are they scale enough to impact their operating performance? Or do they have to do something bigger? And I don't think they're going to go to find themselves as a big content player. I think they want to be more of a platform player. And if they have to do something more along those lines in an environment that could have a lot less deregulation. So with the move, the chatter going around about a potential deal with Charter and a lot of ideas have sprung up from that speculation, such as maybe Verizon will try to separate its Vios business and then do a wireless and wireless deal with Comcast. So there are a lot of permutations out there. But with the Vios business, I think it's been a tough business even though it's going to be a very high quality business. So I think Verizon's response to all the deals they've done going to provide the scale and do they have to do something more substantial. Great. Greg? Yeah, a couple of thoughts to follow up on this comment with respect to Verizon. Verizon is kind of a unique situation where they've got really saddled with a significant debt load from buying out the Vodafone stake. So anything they do, they really have to be conscious of the fact that it's probably going to be very heavily skewed towards an all-stock or mostly stock transaction, which could limit some of their options in the marketplace. But things have really changed a lot in the last year. So we think that we're probably from a regulatory perspective. Probably this is the first time in a recent memory that the government would entertain the consolidation from four carriers down to three on the wireless side. But it's also the first time in a long time where the circumstances don't really lend themselves to consolidating from four to three. Sprint Team Mobile, which made a lot of sense in the past when they were both weaker players, Team Mobile certainly emerges a much stronger player and not sure they'd want to be weighed down with some of the baggage that comes with Sprint. So while the regulatory environment is changing, the dynamics in the marketplace are changing as well. But I would add that there's the big unknown in the wireless space. That is a third party coming in. Dish Network is sitting on a massive amount of spectrum that they have not obviously made significant steps towards building out. So they're faced in the coming months and years with some difficult decisions. Merged into one of the existing carriers, do they sell their spectrum and just try and monetize it? Do they initiate a build out? Or do they partner up with one of the wireline carriers, whether it's a charter or a Comcast, put that spectrum to use and build a fifth national network in the U.S.? So I think in 2016 or 2017, rather, that's really the big thing to watch is what happens with Dish and their swath spectrum. Okay. One thing each of you touched on is that the regulatory environment seems to be changing or potentially changing this year. To what extent do you think that it changes up and down the stack in terms of not just the big wireless players, but lower down? Does it change who might buy who who becomes interesting or people can cross cross lines that didn't cross before? Sure. I mean, I think M&A has become probably a more interesting part of people's strategies at this age. It's clearly always been a part of our growth strategy and we would continue to expect to execute on it. We'd expect a relatively simpler regulatory framework. We historically have not been really hampered in much degree because we're a much smaller firm than some of the larger firms that we've been talking about. I would expect people to think about it. I think financing will be continued to be available in this market in the near term. I believe it will clearly probably accelerate into 2017. Ed, how do you think the regulatory environment will affect the broader market as a whole in terms of M&A? I think PI will definitely be more flexible than under the Wieler and the Obama administration. I think there will be more openness for a sprint or a T-mobile deal, but it's quite alluded to you do have serious balance issues there. So I think there are deals to be done in the telco space and maybe there will be more flexibility with cable and wireless deals if they make economic sense. You may see more activity in the broadcasting space. Possibly. Maybe there will be some expansions in regards to cross ownership in certain markets. That may be one area as well where you see some benefits. Interesting. Okay. Prediction time. What predictions can you make? Will you step out on a limb to make for infrastructure M&A in 2017 in any of the segments, fiber, wireless, et cetera? Rick? Well, Rob, as you know, I love reading your blog every morning in your newsletter. So you did have a, earlier this month, as who's going to be an acquirer. And, you know, clearly, we think we will be, we've finished somewhere up in the level of that stack. Staying firms like Zayo and others will continue to be active as they have in the past. One thing that we did publicly as we've announced sort of growth objectives, you know, we put one out there to be a billion dollar firm. We said we'd get there within five years or a fourth quarter of 2020. And we've alluded to our public investors that given the availability and scope of the types of acquisitions we're able to do now, we expect probably to achieve that sooner, maybe significantly sooner than we had originally planned when we first put that objective out in the fourth quarter of 50. Great. Ed, what would you say is going to happen this year? I don't know if I have a super bold prediction. Sorry about that. But I think you are going to see that. I'm seeing a lot of stories from my reporters on TMT convergence and industrial Internet of Things. So I think you're seeing a lot of small companies emerge in that area and how Wi-Fi is going to fit into that. And that is one major theme we're seeing. And then going along with maybe not doing big deals, I think we're going to see a lot more joint venture type deals. Maybe going along with the Charter and Finding the Solution for 5G, where maybe you're not going to have full mergers, but you're going to see a lot more JVs and partnerships. Maybe some of what happened in the wireless industry when it's in the earliest stages back in the 80s type of thing. And then one other thing is just the role of China, not so much maybe on the telecom side, but on the media side, and if you do have more convergence on the between media and telecom, what will China plan on? They've been very big barters in the media space. Great. So we'll sprint by T-Mobile or what? I don't think so. I think we're going to leave 2017 the same way we came in with four major national carriers. I think we're probably keeping our eye on three major things. We've talked a little about Verizon and Charter. I think that's probably a long shot, but certainly a possibility that we're going to watch closely this year if they try and react to some of the deals that AT&T has made. I think we're watching AT&T as well not for large acquisitions, but really as I said to button up some of the infrastructure needs for 5G. I think straight path is a potential target for them as you look at their 39 gigahertz spectrum rather. And then as I mentioned, I think we're finally, we were talking about predicting it for a while. Once the auction wraps up here in the coming days, I think this is going to get much more active talking to some of the partners in the marketplace or the other vendors in the marketplace about their options. So I hope that by the end of the year we'll have some clarity. Are they going to build? Are they going to sell? Are they going to merge? But those are the three big things we're looking at this year. Great. Those are the big companies. Do you have any predictions for that? Any of you? Rick? In some respects, that's exactly what we did at the end of last year and close at the beginning of this year looking at a fiber operator that fit very complementarily into our business. And so we would, you know, we would opportunity to look at other operators. I think players like them and others have done the same thing. We're very much in the global networking business, much less in the metro business. I do believe there will be other assets. I think in terms of the ones that would come up for sales, I recall from the other blog you did, which company is most likely to sell. I think two or three of those types of companies fit one, two and three on your list, I believe. So I clearly believe that there will be continued consolidating in the fiber sector of our business as well. Great. Ed, do you think we'll continue to see the smaller players be the usual C-small players combined? One area we do still have room for consolidation, not so much in the U.S. but in Europe is in the data center space. I think there are a lot of opportunities for convergence there and people have worked on deals. The last few years in the United States are turning their attention to Europe this year. So interaction is there that, you know, people are wondering where they'll find a home and I think you have a lot of small players throughout Europe that can also provide. So I think there will be some data space there this year. And Greg, anything else? Yeah, I think one company to watch this come in the coming years is Crown Castle. You know, not a traditional fiber plant, not a traditional wireless plant, but kind of straddles between the two, right? So any metro fiber that fit the wireless carrier needs for all sales daisies or IoT needs, I think crowns probably a pretty aggressive acquire in the marketplace and looking at those assets to see how they can fit into conversion infrastructure. So that keep a good close eye on them. I will as well. That's all the questions here. Thank you, Rick, Ed and Greg for giving us your views on M&A past, present and future. And I'll hand the podium back to Jamie now. Jamie. Thank you, Rob, for moderating our roundtable on telecom M&A. Thank you to our esteemed panelists, again, Rick Calder, CEO of GTT, and Moulin, TMT editor of Merger Market and Greg Weiner, co-founder of Vertex. Thank you gentlemen for your thoughtful insights and predictions on the deal shaping our industry today and potentially tomorrow. Rob, we also look forward to hearing you live in about 140 days from now at the CEO roundtable on IoT at telecom exchange New York City, June 20th through the 21st at Sobriani Wall Street. Thank you audience for joining us. If you want to see this in other monthly virtual roundtables, including the one from last January with Rick and Rob and Bjarni, we definitely recommend you go ahead and check it out at jamescato.com. You can also find more information about telecom exchange at thetelecomexchange.com. And if you'd like your C level to be featured here next time, go ahead and email us at pr at jamescato.com. Thanks everyone for tuning in. Super appreciate it. JSA TV, the newsroom for tech and telecom professionals as well as JSA radio. Your voice for tech and telecom on iHot Radio. Until next time, happy networking.