Vienna Calling

Economic News

22 Jul 2010
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With news that Bulgaria's leading mobile phone operator was one step closer to being bought up by Telekom Austria this week, it seemed a two-year chase was about to come to an end. Meanwhile, the news also refocused market attention on the nation's telecoms sector, as it prepares for a period of stiff competition and the entrance of a third GSM network.

On November 30, Telekom Austria CEO Heinz Sundt told The Associated Press that his company had signed a memorandum of understanding with Bulgarian GSM leader Mobiltel's shareholders, under which the Austrian firm has the exclusive right to start negotiations on Mobiltel's purchase. Telekom Austria is reportedly ready to pay around 1.6bn euros for the Bulgarian cell-phone operator.

The announcement comes as bad news for Vodafone, Deutsche Telecom and Canada's TIW, which were also known to be in the market to buy Mobiltel - also known as M-Tel.

Telekom Austria will buy the company and its debts, which stood at around 450m euros earlier this summer, according to Reuters. This figure will be deducted from the overall price, Sundt told the news agency.

If negotiations on the sale prove successful, then the buy up will conclude a two-year pursuit of the company by the Austrians. Back in 2003, they had attempted to purchase a controlling interest in M-Tel, in a deal that fell through at the last minute when the Bulgarian board decided to offer a minority 40% stake instead to seven investment enterprises.

Telekom Austria was also widely reported as an interested party in bidding for the Bulgarian Telecommunications Company (BTC), which also contained a controversial third GSM licence.

This interest forms part of what Sundt told Reuters was Telekom Austria's attempt to secure "unbelievable growth" in Eastern Europe during the current period.

"People have been well aware for some time that Telekom Austria is keen on buying this asset and clearly it fits well with the strategy," ING analyst Stuart Gordon told Reuters. "They've got the funding to do it and the price doesn't look unreasonable... It has been delayed so often and that's why there's been a positive reaction today. It now seems to be drawing to a conclusion."

M-Tel looks to be definitely a good catch too. With end of June data giving it a 67% market share - some 2.75m subscribers - the 12 months ending June 30, 2004, also gave the company a turnover of 455m euros and pre-tax profits of 290m euros. The company has been owned since earlier this year by a consortium of Austrian and international financial investors, who had paid some 1.2bn euros for it.

So, a healthy boost in the company's value has been marked by the Telekom Austria offer. The move is also important for its timing, as the Bulgarian telecoms market gets ready for a period of heightened competition in the months ahead.

The reason for the looming battle is that it seems most likely now that BTC will have its own GSM service in operation fairly shortly, giving the Bulgarian market three mobile phone operators instead of the current two.

The second operator, GloBul, had some 1.44m clients as of the end of September, calculated by the number of active SIM cards. According to the company, its revenues rose by 88% year-on-year between January and September this year, to 125m euros.

With BTC's entrance, some market watchers are already saying that in terms of subscribers a saturation point may not be too far off. Therefore, a price war seems the likely outcome. BTC's management have already said they will be up and running by April 2005, and offering subscribers a deal at least 20% cheaper than their competitors. In such circumstances, having a sound financial structure will be essential.

Telekom Austria may well provide just that. The company already has mobile interests in Croatia, Slovenia, and Liechtenstein, and the news over M-Tel boosted its stocks some 2.9% to 12.72 euros on November 29. The company - Austria's largest fixed-line, mobile and internet outfit - saw third-quarter 2004 profits up 17%, year-on-year.

Telekom Austria does not plan to raise capital to finance the M-Tel purchase either, but will finance the purchase mainly through cash. Sundt said the deal for 100% of the company would be finalised by the middle of 2005, with the integration of the company into Telekom Austria's accounting balance taking place in the last quarter of the year. "I assume that we will conclude the talks over the call option before Christmas," Sundt predicted.

The looming price war may see Telekom Austria obliged to pick up a degree of the tab, but it seems willing to enter the contest nonetheless and will doubtless be aggressively expansionist in order to get a healthy return on its investment. It is good news for Bulgarian consumers, who should see call costs falling and services improving, too. Let the battle commence.

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