Danish and French take on Swisscom
FRANCE Telecom yesterday struck a deal with Danish peer TDC to boost their position in the small but affluent Swiss market and challenge local leader Swisscom.
France Telecom will pay €1.5bn (£1.35bn) for a 75 per cent stake in a new company that has the assets and clients of TDC’s Sunrise and France Telecom’s Orange in Switzerland, in a deal that resembled a recent bigger operation for the British market with Deutsche Telekom.
The new operation will have about 38 per cent of the Swiss mobile telephony market and 13 per cent of fixed broadband connections.
The deal comes as European telecom operators are seeking ways to cut costs and improve profitability in mature markets with few growth prospects.
One solution for telecom groups is to buy out rivals to reduce competition in crowded markets, such as France Telecom is doing in Switzerland. Another is to sign infrastructure-sharing deals with competitors to reduce costs.
“We think this will be a very successful combination in Switzerland and will allow us to compete with the strong market leader,” France Telecom’s finance director Gervais Pellissier, said at a conference call, referring to Swisscom.
The move fits with France Telecom’s M&A strategy of doing deals to improve its position in the mature countries where it is already present, while also keeping an eye out for expansion opportunities in emerging markets.
“We will see whether there are more places in which we can do in-market consolidation like we did in the U.K and in Switzerland, but this may be the end for now,” said Pellissier on the conference call.
Serge Rotzer, Swisscom analyst at Vonotobel, wrote that the merger was actually positive for Swisscom because “regulation should become less intense” and that “competition is unlikely to intensify” because the new player will not cut prices.
The new player, to be headed by the chief executive of Orange Switzerland Thomas Sieber, could generate synergies with an estimated net present value of €2.1bn. The deal must be reviewed by Swiss competition authorities.