Austria is becoming an unlikely focus of global telecoms groups’ European expansion plans. Mexico’s America Movil bought a stake in Telekom Austria as an apparent stepping stone into an EU footprint, and Hutchison Whampoa is seeking to add France Telecom’s Orange Austria unit to its own subsidiary in the country.
This transaction is going through regulatory review, and Hutchison’s billionaire chairman Li Ka-shing is making it clear that the deal would be just part of a broader strategy to win new European bases while the region is in financial crisis and assets may be going cheaply.
There have been repeated rumors over the years that Hutchison would eventually sell its 3 Europe mobile company, which operates in the UK, Ireland, Scandinavia, Italy and Austria, but is often the smallest player among more established operators. But Hutchison group managing director Canning Fok says the opposite is true ‘ the Hong Kong group is already the largest Asian investor in EU cellcos and Fok said in a speech this week: ‘If there is ever a consolidation to be done, then we are the consolidator, not the consolidated. We’ll end up being the surviving leader. I’m not interested in anything less.’
If the EU’s ongoing antitrust probe blocks the takeover of Orange Austria, Hutchison will seek a judicial review, but will not commit to the plan for an unlimited time, Fok told a press conference, though he added that there would be no question of selling 3 Austria. 3 and Orange Austria together would still have 22% market share, well behind Telekom Austria and T-Mobile, but regulators in some countries are concerned when the number of cellcos is reduced.
As part of the proposed deal, Hutchison agreed to sell Orange Austria assets, including mobile carrier Yesss!, to Telekom Austria for €390m and it has also offered access to its Austrian network to an unidentified MVNO to boost service competition. The Yesss! sale is conditional on the main merger being approved.
Hutchison will be on the look-out for other prey too. In May it made a €2bn bid for Ireland’s Eircom, which is in credit protection, but the offer was rejected and 3 is now combining its networks with Vodafone Ireland for greater efficiency.
The economic crisis in Europe ‘is very good for us, as a newcomer,’ Fok said, not just for acquisitions but because 3 specializes in low cost and prepaid offerings, which appeal to cash-strapped consumers. ‘In good times, people don’t see the value that we’re offering as that relevant,’ he added in the interview. ‘But in times like this, it’s very good for us. We have growth.’ 3 Europe had 28.9m subscribers as of March 28.
Hutchison is also investing in other European infrastructure businesses, especially in the UK, such as gas transmitter Wales & West Utilities, and it has expressed interest in Manchester Airports Group.
Also interested in European bargains is France Telecom, whose CEO Stephane Richard touched on the wave of M&A in a recent interview. Most of FT’s acquisition activity has centered on Africa in recent years but he said he was keen to make purchases in Europe ‘ though ruled out either a merger with Deutsche Telekom, with which FT has a deepening strategic alliance, or a disposal of Orange’s stake in the UK market leader, Everything Everywhere (itself a 50:50 venture with Deutsche Telekom). He did suggest it ‘could be an option’ to buy out DT, though said ‘as far as I know they are not sellers themselves’.
‘I am not saying that we are going to buy everything, of course, but we will see and follow closely the situation in the big European markets where we are,’ Richard added, though Orange is selling too, most recently in Austria, where it has a proposed disposal of its Orange unit to 3 Group.
Other units which could come up for sale soon in Europe include KPN’s Belgian division, Base, which it aims to sell despite reported opposition from its new major stakeholder America Movil, and several Telefonica subsidiaries. The Spanish firm wants to raise about €1.5bn by selling its Spanish call center company Atento, its stake in Portugal Telecom, its online booking service Rumbo and non-strategic towers in 2012. It is also preparing the IPO of its O2 Germany unit.
The other major international group looking for European footholds is America Movil, though it denied it was after a position in Spain, the home base of its arch-rival Telefonica. Despite its stakes in Telekom Austria and KPN, CEO Daniel Hajj played down reports that it was now looking at TeliaSonera’s Yoigo unit in Spain.
Although Latin America has greater mobile growth potential than Europe, America Movil has limited room to increase its market share there, and is locked in a two-headed war with Telefonica. Therefore it needs new territories and partners to boost its revenue streams. Its predicament was seen in its second quarter, when it suffered a 45% drop in profits, amid rising debt and foreign exchange fluctuations.
Mexico-headquartered Movil reported net income of MEP13.25bn ($986.4m), down 45.5% year-on-year, on revenue of MEP191.74bn, up 9.3% on the previous year. The company noted a MEP16.1bn foreign exchange loss, as several Latin American currencies depreciated, and net debt increased by MEP29.7bn during the period, mainly because of the European investments and the purchase of US MVNO Simple Mobile.
Despite lacklustre top line results, the mobile business was showing strong trends and mobile revenue increased by 14.1% year-on-year, to make up 61.4% of Movil’s total. Most importantly, given the relatively low ARPUs and prepaid dominance of Latin America, ARPU rose ‘practically everywhere’. This was helped by a 32% increases (at constant currency) in mobile data revenue. However, the region’s largest market, Brazil, was the ‘notable exception’.
During the period, Movil added 5.9m mobile subscribers, including 1.1m gained from the acquisition of Simple Mobile, with 1.4m additions in Brazil and 1.4m additions in Mexico. At the end of the period it had 251.8m mobile subscribers. Mexico is its largest market, and it now has 68.1m customers there, followed by Brazil, where it has 63m. As well as mobility, there was strong growth in pay-TV, which helped to offset declines in fixed line voice.