Anyone looking at the acquisitions by (large) telecom operators in recent years will quickly notice two things: whereas in the past it was about by complementary assets within the sector (such as Deutsche Telekom taking a stake in OTE), more recently it’s about horizontal expansion. Telecom operators are now also buying technology assets, for example:

• BT acquired Ribbit (VoIP) for USD 105 million (July 2008).
• Vodafone bought Wayfinder (navigation) for USD 29 million (December 2008).
• Telefonica took over Jajah (VoIP) for EUR 145 million (December 2009).

Taking a clear high-level view, we can draw a number of conclusions. First, it’s about new technology; especially VoIP and LBS (location-based services) are keeping the takeover engines going at full speed. Second, we can see that adding these new services doesn’t always happen per se via an acquisition. For example, 3 UK and Verizon Wireless offer low international call rates via cooperation deals with Skype. There’s a lot to say for this, as acquisitions carry a number of standard risks: after a takeover crucial intellectual capital may disappear if employees resign. Furthermore, it’s questionable whether a technology company with a big parent company can maintain its innovative character. A takeover often leads to guaranteed product take-up as well, reducing the need for innovation.

Third, the takeovers can be seen easily as a reaction to the (credible) threat of over-the-top providers. They are also strengthening their positions on the VoIP and LBS markets. And to add to the problem, they are offering VoIP and LBS services free. A few examples:

• Microsoft takeover in the VoIP sector: Tellme.
• Google VoIP deals: Grand Central, Gizmo5, Global IP Solutions.
• Nokia acquisitions in LBS: Navteq, bit-side, Plum, MetaCast.
• Apple takeovers in LBS: Placebase, Poly9.

You can also do nothing, but then you know for sure that your customers will install Fring in order to use Skype. Via acquisitions (or cooperations) you can manage the rise of VoIP along a chosen path. Telefonica provides an example here: in Germany, O2 Global Friends offers cheap international calls, but limited to just five family and friends.

Fourth, a technology takeover offers room fob roader innovation. BT and Telefonica have both indicated that Ribbit respectively Jajah are fertile incubators for innovation. Technology and innovation are not really in an operator’s blood; their business is primarily selling subscriptions.

Conclusion: acquisitions have a number of positive benefits. They lead to direct control, and the applications can be integrated into the network so they work well. In addition, there’s guaranteed exclusivity (assuming third-party sales are discontinued), and the operator gets a time-to-market advantage with new products. Still, it doesn’t always work out perfectly. Vodafone’s takeover of Wayfinder resulted in a u-turn: first the service was ended and now the software is offered open source for developers. In short, telecom operators are looking for the right strategy for technology and innovation. A takeover is not always the best route, also because it’s far from certain that the technology will provide an early-mover advantage – think of the numerous providers of VoIP and related services (Skype, Fring, Ooma, etc). To add to that, VoIP and LBS applications are increasingly offered free by OTT providers. The same applies for fixed broadband as for the mobile sector: why do an expensive takeover if a partnership can lead to the same result? It’s still to be seen if BT and Telefonica make it with their innovation strategy built around takeovers (Ribbit and Jajah).