Consolidation and increasing scale is the future of the machine-to-machine (M2M) mobile virtual network operator (MVNO) industry. This was confirmed when two of the most successful M2M MVNOs (Kore Wireless Group and RacoWireless) announced on 11 November 2014 that they are to merge. Rumours of a major deal involving Kore had circulated in the industry for some weeks and it is now expected to close before January 2015.
Kore simultaneously announced that ABRY Partners, a private equity firm, had acquired a majority stake in the company, thus enabling its acquisition activity. These two deals appear to be ABRY Partners' first venture in the IoT and M2M space. The firm has previously specialised in media-related investments.
RacoWireless is the third M2M MVNO to be acquired by Kore in the past 4 years
Kore and Raco have been involved in both sides of merger and acquisition (M&A) activity during the past three-and-a-half years. Raco acquired an application layer platform provider, Position Login, while Kore acquired two M2M MVNOs, Mach Communication and Jazz Wireless Data (see Figure 1).
Figure 1: M&A activity involving Kore Wireless Group and RacoWireless, 1H 2011–2H 2014 [Source: Analysys Mason, 2014]
Kore's acquisition of Raco will bring together two MVNOs that together serve around 3 million M2M connections
John Horn, President of Raco, hinted to us that the new entity will rebrand in the months following confirmation of the acquisition. We expect that the rebranding will make use of the Kore Wireless brand rather than that of Kore Telematics, reflecting the company's dramatic increase in scope and scale. M2M MVNOs are known for developing vertical application expertise in niches or with customers that are too small for larger mobile network operators (MNOs) to be concerned with. Kore Telematics, Kore's main MVNO brand, reflects its early focus on fleet and commercial telematics. However, Raco and Kore have both established themselves as horizontal M2M service providers, so when Kore expanded its presence in the Asia–Pacific region it launched its brand as Kore Wireless rather than Kore Telematics.
The acquisition of Raco brings together two MVNOs that together will serve around 3 million M2M connections. This is a very significant number and propels Kore into the same league as some well-established MNOs, but leaves it somewhat short of MNOs such as AT&T, Telefónica and Vodafone, which have M2M connection numbers in the double-digit millions. Kore will be present in 110 countries, thanks to service and roaming agreements with 12 MNOs worldwide. This scale will add credibility when responding to requests for proposals (RFPs) from large enterprise accounts.
Further M&A activity will be motivated by a need for M2M MVNOs to scale in order to compete with MNOs
John Horn told Analysys Mason that Kore intends to continue to use acquisitions to increase scale.
"There are more steps to come as we expand globally and expand our product offerings ... ABRY Partners has a lot of cash available to help us complete more acquisitions and keep that part of our programme moving forward."
John Horn, President, RacoWireless
M2M MVNOs that do not consolidate may find themselves dwindling in importance. As MNOs develop (or at least try to develop) end-to-end (E2E) solutions, the logic for MVNOs gets weaker because they are no longer offering unique capabilities. To counter this, MVNOs need to consolidate and increase scale if they are to survive. We expect other M2M MVNOs to consolidate, which will enable these larger service providers to target the same types of client as MNOs, and to establish greater credibility with large enterprise buyers.
In our view, it is also possible that M2M MVNOs will become acquisition targets for MNOs. In the realm of traditional mobile voice and data, there are more than a handful of examples of MNOs acquiring MVNOs for customer acquisition. For example, KPN acquired Yes Telecom, an MVNO focused on the SME market in 2010, and Atlantic Telecom, an enterprise-focused MVNO in 2011. One can easily imagine a scenario in which an MNO that is late to the M2M market acquires leading M2M MVNOs to gain a foothold in its domestic market and internationally.
Source: Analysys Mason
