There have been oceans of copy on how much disruption and how the pecking order in wireless has changed, as a result of Orange and T-Mobile in the UK agreeing to merge, and now something similar is happening in Switzerland. Orange there will merge with TDC (trading as Sunrise in Switzerland) to create a 75% owned number two in the market in both wireless and fixed lines.
Effectively TDC, the Danish incumbent has always been regarded as the number two there, due to its fixed line network, and by taking a payment of €1.5 billion from France Telecom ($2.25 billion) it has merged its operation with the mostly wireless operations of Orange and fallen back to 25% ownership of the combined entity.
This is a continuing example of how broadband lines and wireless capability are going through consolidation throughout Europe and this particular deal is fascinating for anyone working with telco owned video in these sectors.
The bulk of the company’s 1.1 fixed lines have come from TDC’s contribution and the final merged company will have around 3.4 million wireless customers against a population of around 7.6 million, and 1.1 million fixed lines. So whereas Swisscom has adopted DVB-H for mobile TV in Switzerland and it has used Mediaroom for its IPTV services, France Telecom has 63 mobile TV channels available in France (in French so perfect for much of Switzerland) using 3GPP streaming, and has built its own IPTV system, and then sold it off to Thomson.
While it might be reasonable to expect a triple or even quad play to be mounted in Switzerland using the Thomson IPTV technology and mobile streaming, it’s not completely given. TDC in its native country of Denmark (it originally operated as Tele Danmark) also built its IPTV with Microsoft Mediaroom and Alcatel integration in 2007. Although there has been no announcement we can find, it may well have been preparing something similar in Switzerland to go up against the increasingly competitive Swisscom, freed relatively recently from Government ownership.
Swisscom itself acquired Italy’s Fastweb in March 2007, also another IPTV expert and hotbed of triple play economics.
Denmark’s TDC was acquired in 2005 by private equity players Apax, The Blackstone Group, Kohlberg Kravis Roberts, Permira, and Providence Equity Partners, creating the Nordic Telephone company to acquire it and it was this group that pushed it towards working with Mediaroom. In its home territory TDC already owns its own cable TV operation and has tried to harmonize services across both cable and IPTV. TDC began life as the Danish government owned incumbent Telco and was partly privatized in 1994 and fully privatized in 1998.
This seems to be a financially based transaction with the private equity owners of TDC selling off assets in order to pay down debt, and potentially to get the company ready for a sale, or another public floatation. In actual fact TDC has always stayed public since the private equity group failed to get all of the shares, and so it may simply choose to put more and more shares onto the market over time, so the paying down of debt, is perhaps window dressing.
The new combined entity will have 38% of the mobile market and 13% of the fixed broadband connections and revenues of around €2.0 billion.
Gervais Pellissier, France Telecom Deputy CEO and CFO, said: ‘The planned merger of Sunrise and Orange Switzerland marks a new significant step in the long-term investment by France Telecom-Orange in Switzerland. Following the UK joint venture between Orange and T-Mobile, France Telecom completes another major in-market consolidation, consistent with its M&A policy.’ TDC is now understood to be planning to focus on Nordic markets.
The two companies said that the deal will lead to a better mobile network, with more broadband capacity and a reduction of around one third of base stations, and it will have a better retail reach. The company will save €132 million a year in IT, distribution, marketing and workforce optimisation, after initial costs of €92 million. Capex reduction would also be in the order of €376 million between 2010 and 2015.
There are agreed rates at which France Telecom can buy back the rest of the business using profits and cash it generates in each of 2012, 2013 and 2014 or TDC can sell its stake on to a third party. France Telecom will have an option to buy TDC’s shares after a year at a value of €1.2 billion, compounded at a rate of 7% a year. The deal is expected to be closed in February 2010.
Earlier in the month TDC also sold off its holdings in Invitel formerly the Hungarian Telephone and Cable company