(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)

A scarcity of takeover targets is feeding a desperate scramble in Middle East telecoms M&A. Bahrain's incumbent operator Batelco is eyeing a stake in the enterprise unit of India's Reliance Communications.

It comes just months after agreeing a deal worth $1 billion to buy assets spanning 12 markets, including Monaco and the Channel Islands, from Cable & Wireless . Batelco's pick-and-mix takeovers are symptomatic of a market where too many big telcos are chasing too few assets.

Batelco is in search of stable cash flows amid fierce competition in its home market. Bahrain accounts for 60 percent of revenue but profit there fell by almost one-third in 2012. Cash flow is weakening and the cash dividend payout ratio has fallen from 75 to 60 percent in just two years.

The problem is that Batelco, with a market value of just $1.6 billion, is a minnow in the Middle East. It lacks the financial firepower to compete for the few assets that do come up for grabs, like Vivendi's 53 percent stake in Maroc Telecom worth around $6 billion. Larger rivals are also consolidating and looking for growth opportunities. Saudi Telecom Co., Ooredoo (formerly Qatar Telecom) and UAE operator Etisalat already have a large regional footprint and dominate with a combined market value of $47 billion.

It is hard for the smaller operators to be consolidators rather than targets. But many enjoy protection from government shareholdings. Oman did try to find a strategic partner for tiny Omantel in 2008 but the government aborted the deal. Any further reduction of state shareholdings now looks unlikely in the medium term given the strategic nature of telecoms and hyper-sensitivity of Gulf monarchies post-Arab spring.

Batelco's M&A strategy may yet prove an effective response to its operational and strategic challenges. But it is also taking it into areas where it has limited experience, for example in managing the deep-sea cables that come with the Reliance unit. With sensible deals hard to do, small Middle Eastern telcos might just have to tough things out. – Reuters