The OSS/BSS-led playbook for Private Equity-based improvement of the telco industry

In recent years, we’ve seen a rise in traditional telecommunications providers selling off tranches of tower assets. These sell-offs have likely occurred for a variety of reasons – to help fund 5G roll-outs, to pay down debt, to invest in further digital transformation projects, etc. In short, capital demands / ambitions appear to often exceed the strong revenue streams that most telcos still maintain today.

Brookfield Asset Management and other private equity (PE) firms have been active in acquiring telecommunications tower companies, reflecting the sector’s attractive investment characteristics – long-term, compounding cash flows and growth potential driven by the global expansion of mobile communications and data consumption.

PE firms may now be taking this a step further, increasingly entering into the realm of buying communications service providers, not just telco infrastructure carve-outs. Recent reports suggest that Brookfield is in the process of acquiring Australian operator Optus for around $18B.

Perhaps this is just an opportunistic buy arising from recent issues experienced by Optus. As Brookfield’s CEO, Bruce Flatt, highlights in this fascinating In Good Company episode, “entry point is extremely important in investment.” Earlier in the episode he also described how Brookfield now sees data infrastructure – towers, cables, data centres – as important investments. The Optus deal (if reports are true) is yet another sign of PE investment into telco infrastructure.

We’ve long believed that:

“Communications services have never been more important, but telco business models have never been more broken.”

This paradox highlights the essential nature and high demand for telecommunications services in modern society, in complete contrast to the difficulties the telcos face in adapting their business models to changing market demands, technological advancements and competitive pressures. It seems almost inevitable that some type of disruption of telco business models is going to occur. Comms services aren’t going away any time soon. The current telco business model might.

It seems to me that PE is ideally positioned to capitalise on this paradox – this fractured state of the telecommunications industry – for several reasons, leveraging their distinct strengths and strategic approaches:

1. Operational Expertise and Restructuring Capabilities: PE firms tend to excel in operational restructuring and efficiency improvements in complex infrastructure, especially compared with state-owned infrastructure. Unlike incumbent telco people, thinking, empires and approaches, PE firms can implement significant restructurings within telecom companies to streamline operations and enhance profitability. This expertise is crucial in addressing the inefficiencies and legacy issues that may plague traditional telco business models
2. Access to Capital: PE firms have access to substantial capital resources, enabling them to invest up-front in necessary technology upgrades and infrastructure expansion with longer-term payback in mind than publicly owned telcos can. Such injections of capital are critical for telecom companies needing to transition to next-generation networks beyond 5G, improve service quality, and expand their service offerings / coverage
3. Longer-term Investment Horizon: Although PE firms typically seek to exit their investments within relatively short timeframes, they are also capable of taking a long-term investment perspective when necessary. This approach allows PEs to support the gradual transformation of telecom companies, aligning with long-term industry trends and technological advancements. Flatt talks about the attractive compounding nature of data infrastructure in the podcast link above, so it seems that telco is a long-term play for Brookfield at least
4. Strategic Flexibility: With a strategic focus on value creation, PE firms can pivot telecom companies towards more profitable and sustainable business models. This might include focusing on high-growth areas,  divesting non-core assets or radically shaking up operations models to streamline the business. From the limited examples we’ve seen of TowerCo carve-outs, the PE approaches to operating those tower assets is far removed (and seemingly far more efficient) than the originating telco approaches
5. Leveraging Economies of Scale and Scope: Through acquisitions and mergers, PE firms can create synergies among their portfolio companies, leveraging economies of scale and scope to improve competitiveness and market positioning of telecom companies

By addressing these areas, PE firms can potentially revitalise telecom companies, making them more agile, competitive, and better aligned with the evolving digital economy. However, success in this endeavour depends on the PE firm’s ability to navigate telco complexities. That’s no easy feat!

And this, is precisely where OSS and BSS come into play.

As we suggested in the previous article, telco execs (or PEs) don’t want to invest in OSS/BSS, but OSS and BSS fingerprints are on almost every part of a telco’s entire business model.

Being lucky enough to have worked extensively through OSS/BSS decision-making processes for Tier1, Tier2 and even utility carriers, there are some distinct advantages of bringing the more pragmatic T2 approach to T1 OSS/BSS stacks. Some of these examples are described within the table below.

Drawing on ideas from the T2 approach can actually make T1 OSS projects more cost-effective, timely and less risky. Stripping out complexity from existing telco OSS/BSS stacks to make them more akin to T2 models also has merit. This complexity reduction and system consolidation thinking also seems to be an ideal playbook for PEs that are seeking to streamline the operations of the telcos they invest in.

Having said that, in no way am I suggesting that this is easy. The disentanglement of incumbent T1 telco people, process and technology is ho easy feat!

And it’s not just infra / asset / telco carve-outs that this model suits. We’re also seeing PE acquisition and consolidation of telcos / ISPs, where investors are buying multiple operators / infrastructure. It’s clear that common OSS/BSS tooling across the acquired entities brings opportunities to standardise solutions, executive reporting, etc.

We also see PE as potentially having a positive impact on consolidation within the highly fragmented OSS / BSS vendor supplier market.

If you’re in the business of acquiring telcos, ISPs or even telco software companies, we’d love to share ideas with you around bringing more PE thinking to the industry. We want to help eliminate the paradox described earlier. We want comms services and comms service companies to both thrive and deliver amazing capabilities to anyone using digital services.