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Telenor on Billion-Dollar Spree

Norway's national operator Telenor ASA (Nasdaq: TELN) announced $1 billion worth of acquisitions this morning as it acquired the main competitive broadband players in Sweden and Denmark (see Telenor Buys B2, CyberCity).

The incumbent will pay 6 billion Swedish Kronor (US$820 million) for progressive Swedish operator Bredbandsbolaget AB (B2) and 1.4 billion Danish Kroner ($236 million) for Danish competitive carrier CyberCity A/S, making it the key fixed-line challenger to TeliaSonera AB (Nasdaq: TLSN) in Sweden and TDC A/S (Copenhagen: TDC) in Denmark.

"If you want to be in the Swedish market, B2 is the one to buy. It's a big rival to Telia," says Heavy Reading senior analyst Graham Finnie, who notes that the Swedish market is markedly different from Telenor's home market.

"Sweden is much more competitive than Norway, where Telenor has an easy ride. Norway is not in the European Union, so it doesn't have to comply with all the regional rules. It's noticeable that Telenor is in no rush to implement next-generation technologies, such as ADSL2+ and IPTV, because it's such a benign market where there's little competition," says Finnie, author of the recent report, Next-Generation Broadband in Europe: The Need for Speed (see HR Tracks Europe's Need for Speed).

B2, well known as one of Europe's IP and FTTH (fiber to the home) pioneers, has 335,000 subscribers, giving it a 24 percent market share, which was boosted by its acquisition last year of Bostream (see Sweden's B2 Acquires Bostream). Of those subscribers, 80,000 use the operator's VOIP service, which was launched in 2003 (see B2 Innovates to Deliver VOIP).

The operator, which will be merged with Telenor's other Swedish activities, has recently begun unbundling TeliaSonera's copper loops to deliver high-speed ADSL2+ services to add to its Ethernet-over-fiber services. B2 also offers IPTV services (see B2 Picks Ericsson for Ethernet DSL).

The privately held company, formed in 1999, had planned an IPO in 2000, but announced its plans, and a high proposed price per share, just as the Internet bubble started to burst (see Swedish Carrier Suffers Setback and Swedish Carrier Shelves IPO).

Cybercity is a smaller operator, with its 90,000 customers (8 percent market share) making it the third largest fixed-line operator in Denmark. It will be merged with Telenor's Danish mobile operator Sonofon Holding A/S, which was acquired in 2003 (see Telenor Takes Control of Sonofon). Sonofon is the number two mobile operator in Denmark and is particularly strong in the business mobile services market.

Like B2, Cybercity is installing its own DSL equipment in the incumbent's local exchanges with a view to offering triple-play services to high-end residential and small business customers (see Alcatel Wins Danish DSL Deal).

Telenor believes it can ultimately save 2.5 billion Norwegian Kroner ($386 million) in operational costs once the two operators are fully integrated.

Telenor says the acquisitions give it a stronger power base in Scandinavia, where TDC recently bolstered its position against regional powerhouse TeliaSonera (a combination of Sweden and Finland's national operators) by buying Song Networks, now TDC Song (see TDC Buys Song, Reports Q3). It also marks Telenor's initial foray into residential broadband outside of its home market, as its current overseas holdings are focused on mobile and business service activities.

But is Telenor paying too much? Finnie notes that the acquisitions are worth about $2,500 per subscriber, and "that's more than you would have paid in the past per subscriber for a broadband player."

But the prices don't appear to have freaked out Telenor's investors: Its share price dipped only slightly, by less than 1 percent, in trading on the Oslo Exchange today.

That might reflect the increasing importance of high-speed access these days. "If you're a wireline operator then you have to be in broadband. That's the only thing that justifies being in fixed-line telecom at all," says Finnie.

And broadband has been the driving force behind a number of European M&A deals of late: See French Carriers Announce Merger, Telecom Italia to Buy Tiscali France, DT, T-Online Merger On Track, and Telecom Italia Swallows ISP Assets.

Consequently, Finnie expects to see further moves to buy leading broadband operators, and believes France's Free, which has more than 1 million customers and is profitable, and Italy's FastWeb SpA are prime candidates to be acquired. "If there's enough money on the table, any of these companies could be acquired," says Finnie.

— Ray Le Maistre, International News Editor, Light Reading

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