The companies that connect our phones and computers and those that deliver our favourite films and TV shows are rapidly becoming one and the same. Mounting competition, aggressive regulation and declining demand for landlines have weighed on telecom providers, leading many to focus on selling 'quad-play' bundles of broadband, TV and both mobile and fixed-line telephony. Investors had front-row seats to this seismic industry shift last year, and 2015 promises to be no different.
FTSE 350 telecom companies have turned to acquisitions to broaden their range of services, relieve competition and realise cost savings, scale benefits and network effects. That strategy also reflects the global proliferation of smartphones and tablets, soaring demand for online video and high-speed '4G' wireless coverage, and surging interest in internet-connected cars, homes and accessories. Those trends have strained telcos' capacities, and consolidation can be a cheaper option than upgrading costly network infrastructure.
The old national monopoly BT (BT.A) is an illustrative example. It launched its BT Sport television service in 2013 and now plans to enter the UK mobile market by buying carrier EE for £12.5bn. Meanwhile, pay-TV titan Sky (SKY) convinced 37 per cent of its subscribers to take 'triple-play' bundles of telephony, pay-TV and broadband in the year to 30 June 2014, and its broad offering attracted 342,000 new customers - the most in three years. It was also busy with acquisitions: Sky Italia and Sky Deutschland widened its customer base from 11.5m to 20m.