Monday 1 December 2014

Vodafone Joins Asset Hunt as BT Spurs Global Dealmakers

410.2011/28/2014
BT Group Plc (BT/A)’s pursuit of O2 or EE, Britain’s two biggest mobile phone operators, prompted predictions of a wave of dealmaking in the U.K. The interest shown by Vodafone Group Plc in Liberty Global Plc shows that’s not just idle speculation.
Investors reacted to news of that interest by pushing Vodafone’s shares down as much as 5 percent.
BT is already the biggest U.K. broadband provider so a purchase of O2, owned by Spain’s Telefonica SA (TEF), or EE, a joint venture between Deutsche Telekom AG and France’s Orange (ORA) SA, would restore the former state telephone monopoly to a dominant position in the country.
With Vodafone (VOD) and Hutchison Whampoa Ltd, owner of U.K. mobile provider Three, now examining whether to pursue their own deals, according to people familiar with the situation, BT’s competitors appear ready to respond. Given that most British mobile phone and
cable companies are foreign-owned, BT’s move has repercussions from London to New York and Hong Kong.
A BT acquisition of O2 or EE, each valued at more than 9 billion pounds ($14 billion), would transform the “competitive dynamics in the country’s telecoms industry,” Erhan Gurses, an analyst at Bloomberg Intelligence, said, leaving BT with more than 20 million mobile customers to add to its 33 million subscribers for TV, home phone, broadband and wholesale.
Photographer: Jason Alden/Bloomberg
A wave of consolidation could also help ease competition in a crowded U.K. market made... Read More

BT’s Checkbook

“BT are back in the market with a checkbook,” said Nick Jones, a partner at Cavendish Corporate Finance, in an interview, adding that “a big move by BT” will “stimulate the need for growth and consolidation” elsewhere in the U.K.
Until now, Britain’s telecoms market has been unusual in Europe because most companies do not yet provide the full range of telecoms services -- Internet, mobile, television and home phone -- preferring instead to buy in services that they don’t have from competitors.
BT’s purchase of a mobile operator would change that in an instant, making it the biggest British company to offer the full “bundle” of all four services -- known in the industry as “quadplay”. It also owns valuable English and European television soccer rights.
The challenge for Vodafone and others is how to respond to a competitor that could use its new scale to cut mobile subscription prices to lure their customers away, while offering soccer matches on mobile devices. Hence Vodafone’s interest in John Malone’s Liberty Global, owner of U.K. cable operator Virgin Media, as well as other assets in Europe.
Photographer: Balint Porneczi/Bloomberg
Orange Chief Executive Officer Stephane Richard said Nov. 21, “The U.K. market will go... Read More

TV Interest

Vodafone may want “a compelling TV proposition to gain scale,” Gurses said. It’s also considering buying Blinkbox, a video-on-demand service owned by Tesco Plc (TSCO), according to a person familiar with the situation.
Vodafone shares fell 4.6 percent to 223.05 pence at 10:51 a.m. in London.
While the U.K. has been a holdout in the move toward “quadplay” convergence, its big providers now recognize that the approach should increase the revenue generated per customer, cut costs through synergies and prevent subscribers from defecting to competitors.
It’s been a busy year in Europe for telecoms deals as companies move toward bundled services and regulators allow more mobile mergers. In France, cable operator Altice SA (ATC) in April bought SFR, the country’s second-largest mobile carrier, in a $23 billion deal. In Germany, the region’s largest economy, Telefonica bought Royal KPN NV (KPN)’s local unit, E-Plus, for $11 billion.

U.K. Convergence

“The U.K. market will go toward convergence just like all the other markets, there’s no reason it should be an exception,” Orange Chief Executive Officer Stephane Richard said Nov. 21.
As well as Virgin Media, Rupert Murdoch’s Sky Plc (SKY) -- another broadband and television specialist -- could also look for a wireless partner, according to Jones at Cavendish.
There is also likely to be interest in whichever of EE and O2 don’t do the deal with BT. O2 could decide instead to join forces with Hutchison-owned Three, said Paul Marsch, an analyst with Berenberg Bank in London.
EE, Sky and Hutchison declined to comment, while O2 didn’t immediately return a call.
A wave of consolidation could also help ease competition in a crowded U.K. market made up of seven big operators -- BT, Vodafone, Sky, EE, O2, Three and Virgin -- which will be particularly intense if all these companies start offering “quadplay” services without merging with each other.

Filling Gaps

“If everybody fills in those gaps, then you end up with seven operators offering converged service,” Marsch said. “That’s not a very attractive prospect.”
Still, the possibility remains that U.K. regulators may object to the BT deal, particularly given the potential scale of the enlarged company, Gurses said. If BT and EE combine, the company will have the largest mobile network, the biggest wireless spectrum holdings and the greatest mobile market share. “This would likely bring calls for strict remedies to stem BT’s dominance,” Gurses said. “Spectrum disposals and stricter wholesale regulation would likely be called for.”

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