Euro Carriers Eye Investments

Having settled on their domestic strategies and put their investors' minds at rest over cash flow and debt issues, Europe's incumbent carriers are seeking growth opportunities outside their home turf (see FT Takes on Telefónica, Italians Prep Big French DSL Rollout, Telefonica Buys Cesky Telecom, and M&A Activities Firm Up BT Global).

The latest operators believed to be on the prowl are Deutsche Telekom AG (NYSE: DT), Norway's Telenor ASA (Nasdaq: TELN), and Portugal Telecom Group.

IT's all the rage
According to reports in the German business newspaper Handelsblatt, DT's T-Systems Inc. unit, which provides international services and support to enterprises, has its eyes on French IT services and systems integration firm Atos Origin S.A. (Paris: ATOS).

The news sent Atos's share price up 4 percent to €59.70, valuing the firm at €4 billion ($4.9 billion). Neither party is commenting on the report.

Such a move would be in line with industry trends, as major carriers look for ways to offer more services to large business customers, with integration and outsourcing services a natural extension of their current businesses. BT Group plc (NYSE: BT; London: BTA), for example, has been banging the IT services drum for about two years now, winning a number of notable deals and bolstering its armory with acquisitions (see BT Buys Radianz, Wins Reuters Deal BT Buys Spanish ICT Business, BT Lands €175M Deal, and BT Wins Landmark US Deal).

And it's not alone. Danish carrier TDC A/S (Copenhagen: TDC) has been adding to its IT armory in a number of different markets too (see TDC Buys Swiss Integrator and TDC Buys Dotcom in Sweden).

Adding Atos to T-Systems, which not surprisingly generates the majority of its business in Germany, would expand its reach into major markets, especially France, the Netherlands, the U.K., and significantly for DT, in Central and Eastern Europe, where the German carrier already controls national operators Slovak Telecom and Magyar Tavkozlesi RT in Hungary, as well as a number of T-Mobile International AG operations.

In addition, the German carrier has shown it is prepared to splash out for the right sort of business, having just announced its €1.3 billion ($1.6 billion) acquisition of Austrian mobile player tele.ring Telekom Service GmbH (see T-Mobile Acquires tele.ring). The carrier has also confessed to an interest in mobile operator O2 plc (London: OOM), though these talks have now petered out.

Analyst reaction to the Atos Origin speculation has been mixed. While some believe it would add little value and deflect DT from its core focus, analysts at Goldman Sachs & Co. and Dresdner Kleinwort Wasserstein believe such a move would make sense, giving T-Systems critical pan-European mass and complementary products and services. But in its research notes the Goldman team highlights the downsides of the greater risks associated with IT sector acquisitions and the potentially negative impact on group margins.

Atos Origin employs 46,000 staff in 40 countries, has an annual turnover of more than €5 billion, is profitable, and recently announced an eight percent growth in its first-half sales to €2.73 ($3.34 billion).

Russians hint at Telenor's plans
Norwegian incumbent operator Telenor is interested in the Russian government's stake in telecom holding company Svyazinvest, according to a report by news agency Interfax, which quoted a government envoy who had just returned from talks in Oslo.

The Russian firm's privatization process has been bogged down in red tape, but President Putin's government at last has a bill to consider, and there's a chance the sale could happen in 2006 (see Eurobites: Russian Around).

Telenor, which has already set out its M&A stall this year with an aggressive move into Sweden and Denmark, is no stranger to the Russian market, as it holds a 30 percent stake in mobile operator JSC Vimpel-Communications (VimpelCom) (NYSE: VIP) and a 20 percent stake in Golden Telecom Inc. (Nasdaq: GLDN). (See Telenor on Billion-Dollar Spree.)

The carrier, which didn't respond to requests for comment, would likely face tough competition from Russian telecom groups such as Sistema JSFC for the stake in Svyazinvest, which controls a number of regional operators and Russia's long distance carrier Rostelecom.

Greeks seek outside help
Greek national operator OTE S.A. is reportedly seeking external investment from more experienced European national operators as it restructures, and Portugal Telecom, which already has operations in Latin America, Africa, and Eastern Europe, is the main name in the frame, though both carriers are declining to comment.

The Portuguese carrier, which recently created a holding company to explore investment opportunities in the Asia/Pacific region, is keen to diversify its international holdings and reportedly has €1 billion ($1.2 billion) set aside for investments (see Portugal Telecom Eyes Asia).

— Ray Le Maistre, International News Editor, Light Reading

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digits 12/5/2012 | 3:04:34 AM
re: Euro Carriers Eye Investments The line between telecom and IT services is blurring as carriers and systems integrators encroach on each others' traditional territories.

But is the move into IT, on which, for example, BT has spent a lot of time and money, a step too far for telecom network operators, or the path they need to tread in order to survive?
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