Has the NSA Hamstrung Euro M&A For More Than Just AT&T?

October 31st, 2013 by · 6 Comments

According to the Wall Street Journal yesterday, European officials are throwing some serious cold water on AT&T’s possible plans to expand inorganically into Europe. The main thrust of the opposition relates to the continuing rumors of a bid for Vodafone, but the problem could be a more general one.

Europe, if you haven’t heard, is pissed off at the US government over spying allegations, where access to the infrastructure (with or without permission) is at issue. Officials, with German ones mentioned specifically, are suggesting in advance that any European telecommunications purchase by AT&T would face extra scrutiny.

Now AT&T may have been specifically named both in M&A rumors and in providing data to the NSA by the Snowden leaks, but I seriously doubt that the potential roadblocks are different for another US acquirer.  Valuations in Europe right now are attractive, and AT&T isn’t the only one out there for whom potential deals could be viable.

Verizon, Sprint, CenturyLink, and Windstream probably aren’t interested right now anyway. But could Level 3 face additional hurdles if it were to bid for, say, Colt or Interoute, despite their already extensive presence in Europe?  Might Zayo even for a smaller regional dark fiber asset?  What about in the data center, might Equinix have questions to answer if they want to buy another asset like Kleyer 90 earlier this month?

The real issues might be completely different at a different layer of the network, but when current events and talking heads take over I’m not sure it matters anymore.  We’ve already seen some resistance to foreign ownership lately in the KPN-America Movil saga. I suspect the NSA backlash could provide it with some real ammunition.

Or perhaps cooler heads will prevail when the news cycle moves on to whatever disastrous thing happens next week.

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Categories: Government Regulations · Mergers and Acquisitions

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6 Comments So Far

  • Anonymous says:

    I think the more immediate problem for some of these companies is winning and retaining existing European based enterprise customers.

    If COLT and any of the above referenced US-based carriers were competing for a new enterprise logo, you better believe COLT (and other similarly situated carriers) will throw the privacy, NSA and data protection issues into the mix.

    If COLT were trying to steal business from any of the above reference US-based carriers this issue will arise also.

    Fair or not, relevant or not, won’t really matter. It will become just one more objection the US-based carriers will have to overcome when trying to win and retain business.

    Not sure this would deter an enterprise customer from taking (or retaining) service from a US-based carrier but the longer the stories about US telcos supporting the NSA stay in the news, the more time the US-based telcos will have to spend minimizing the issue with foreign enterprise customers.

  • Anonymous says:

    a few hours ago I posted a comment and it did not appear. So I reposted, but I received the follow message:

    “Duplicate comment detected; it looks as though you’ve already said that!”

  • Grant Lewis says:

    I believe the issue has merit however i do not believe should AT&T be truly interested in inorganic actions that it would stop it altogether rather delay it significantly longer than originally would have been experienced. I would anticipate AT&T would take appropriate planning steps to manage through any anticipated additional delays so i suggest this would be non impactful in their intent to pursue.

    With respect to “selling around” the objections those objections have been there for the last 20 years … only with NSA issues of late have come to forefront. Customers, however, need more sophistication from their providers who can provide a single throat to choke and also allow for greater discounting for aggregate spend. If a european customer has assurances from a US operator that they will not knowingly spy on their customers and have protections written into their contracts to abide by all regional and local municipal regulatory laws they will be indemnified and protected where possible.

    • Anonymous says:

      Grant, first of all, your comment that ATT should continue to pursue inorganic growth opportunities in Europe seems like quite a big risk to take. ATT has already been burned (to the tune of $3-$4b) once assuming they could placate regulators. As a shareholder I’d want a little more comfort than ATT’s belief they can satisfy regulator concerns. European regulators are much more agressive on competition and privacy issues than US regulators who rarely meet a merger (except for the ATT one) they can’t rationalize and let commercial companies take any personal data from consumers. Lest you forget it was the EU regulators, not the US ones, that rejected the Spint/MCI(Worldcom) merger that led to the unraveling of Worldcom’s financial scam and took agressive positions against Microsoft and Google.

      Second, I think you’re casting the enterprise resistance issue in a strange way. The bottom line is customers are savvy enough to know (NOW) that the assurances they get from US-based telcos about NSA cooperation are meaningless and the individuals (including the lawyers working on the contract) from these companies making the promises aren’t even aware of their own company’s involvement in NSA cooperation. Becausethe laws governing telco cooperation with the NSA require non-disclosure, the contractual provisions you reference are meaningless.

      Again, not sure how big of an issue this is or will become but the last thing any account team wants when trying to close any deal is a another reason for a customer to say no.

      Quantifying the commercial impact for US companies on NSA cooperation will be difficult to measure.

      • Grant Lewis says:

        Point of clarification in your reply above … I did not suggest AT&T _should_ continue to pursue rather I suggested that _if_ they continue to pursue they are likely not going to be concerned with obstacles as they will factor into their planning.

        On your second point the same concerns exist bilaterally in other parts of the world and you are right customers are savvy enough to know the protections provided under legal MSA’s are to some extent only to indemnify (and have known this for years) not to guarantee. Conversely i also believe there are similar concerns around spying and eavesdropping from other foreign intelligence operators that have yet to come to forefront of public domain but exist and have raised the concern of US as well as other European countries (ie. China, N. Korea, Iran, etc). My comments are not to suggest that these actions are acceptable rather that companies have been concerned about such issues for quite some time. For example in industrial engineering and or national defence type businesses those customers regularly will use crypto devices when operating in regions where concern around espionage could lead to intellectual property theft.

        Finally, your last comment around quantification of commercial impact won’t truly be known for some time b/c it will be hard to truly measure. One thing for sure is that there will be issues though i suspect it will not be as big as everyone is suggesting.

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