Eurobites: So Shrink Me

Europe's shrinking. And no, it hasn't just been for a swim in a really cold lake.

We're talking here about the ever smaller number of European service providers. The continent's latest craze is carrier consolidation, and if it carries on at its current pace we'll end up with just one regional, converged operator called Eurotelefonekom by 2015.

Pan-European player Tele2 AB (Nasdaq: TLTO) is the latest service provider to pull the trigger, snapping up operators in Spain, the Netherlands, and Belgium (see Tele2 Sets M&A Ball Rolling). That deal follows a string of other significant acquisitions in recent months:

Telenor on Billion-Dollar Spree

French Carriers Announce Merger

Telefonica Buys Cesky Telecom

Telecom Italia to Buy Tiscali France

Enel Sells Wind to Weather

And in the spirit of the moment, Russian carrier Golden Telecom Inc. (Nasdaq: GLDN) has even appointed a vice president of mergers and acquisitions (see Golden Appoints M&A Head). That's known as setting out one's stall...

So who'll be next to splash their cash?

FT Looks South
Having laid out its plans for the next few years, including the expansion of its Orange brand into the fixed as well as mobile markets, France Telecom SA (NYSE: FTE) fancies making a cross-border raid into Spain to buy up the country's third mobile operator, Amena, the wireless operation of Spanish service provider Grupo Auna, whose current owners are looking to sell (see France Telecom Launches NExT).

The French incumbent confirmed earlier this week that it's considering a bid for the profitable GSM player, which, with about 9.5 million customers, competes with big boys Telefónica Móviles SA and Vodafone Spain.

Some local media reports suggest FT might publicly announce a bid as early as today, sending the French carrier's stock down nearly 2 percent on the French bourse.

The anticipated price tag is around €9 billion ($10.9 billion), which, given FT's current near €50 billion ($60.7 billion) debt pile, might cause a few investors to gag. It's possible, though, that the French carrier may seek a partner or partners for any bid.

The deal does fit in with FT's strategy of building a combined mobile and wireline presence in major territories, as it already has broadband ISP Wanadoo SA and wholesale carrier Uni2 active in Spain.

But the French giant is not the only interested party. A consortium of private equity firms, comprising The Blackstone Group, Carlyle Venture Partners, Permira and Providence Equity Partners, is also believed to be interested in Amena, while Providence Equity and Blackstone are reported to have teamed with some other backers and Spanish cable operator Ono to bid for Auna's fixed line and cable assets, valued at around €2.6 billion ($3.2 billion).

Brits Hunker Down
While events in Spain appear to be heating up nicely, the pace is much slower in the U.K., where two much talked-about mergers are crawling towards a conclusion, with deals set to be signed some time this century.

The country's two major cable operators ntl group ltd. (Nasdaq: NTLI) and Telewest Communications Networks plc (Nasdaq: TWSTY), which have been allegedly holding merger talks since Napoleon capitulated at Waterloo, are rumored to be making an announcement imminently, with NTL making a $6 billion bid for its bride to be. Let's hope they put us all out of our misery soon.

The other ongoing British M&A saga, though one that's been running for mere months rather than decades, is that of a potential liaison between Cable & Wireless plc (NYSE: CWP) and Energis plc (OTC: ENGSY). (See Eurobites: Merger Mania for an earlier appraisal.)

The two operators, both wary of being sidelined even further by an increasingly headstrong BT Group plc (NYSE: BT; London: BTA), are in exploratory talks about a potential bid, C&W confirmed today at its annual general meeting (AGM). Analysts have valued the deal at about £700 million ($1.23 billion).

City traders have reported mixed reaction from investors to this possible plan, however. C&W has just over 1.3 billion ($2.3 billion) in cash, and some investors would rather that was returned in the form of dividends rather than spent on a costly acquisition.

That hasn't stopped C&W's share price from rising 3.5 percent this week, though, to £1.49 on the London Stock Exchange.

TI Plays IPTV Catchup
Having watched broadband TV pioneer FastWeb SpA attract hundreds of thousands of customers with its triple-play (voice, video, Internet access) service offering, Telecom Italia SpA (NYSE: TI) is finally catching up with its own entertainment service.

The Italian carrier has been testing out Microsoft Corp.'s (Nasdaq: MSFT) IPTV middleware for some time, and has now launched a trial service over DSL lines in four cities using a combination of the software giant's system, DSLAM and set-top box technology from its partner Alcatel (NYSE: ALA; Paris: CGEP:PA), and home gateways from Italian vendor Pirelli Broadband Solutions (see Telecom Italia Trials IPTV).

The carrier intends to offer commercial services in 21 cities later this year, with up to 4 million households capable of taking the service. Like FastWeb, TI will use the lure of live domestic soccer coverage as a major attraction, backed with the slam dunk offer of Italian basketball coverage. Honest.

Eurodeals for Nortel and Cisco
Having been chastised for its omission from BT's 21CN vendor partner list earlier this year, Nortel Networks Ltd. (NYSE/Toronto: NT) this week showed its ties to the U.K. incumbent have not been cut completely (see BT Unveils 21CN Suppliers). It is supplying the systems that will provide IP Centrex services across BT's next-generation network (see BT Picks Nortel for 21CN Centrex).

As Nortel is the incumbent hosted voice service system supplier to BT, this decision might not come as such a big surprise, but, as Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) discovered, being the existing provider doesn't count for much these days (see Marconi in Turmoil).

Another incumbent vendor securing its position with an incumbent is Cisco, which this week announced a upgrade deal with Deutsche Telekom AG's (NYSE: DT) fixed-line unit T-Com. The upgrade provides the carrier with the opportunity to migrate its GSR 12000 routers to the vendor's IOS XR operating system.

Other European news of note:

Triple-Play Tempers Flare in Italy

Ericsson Runs ONI Network

Telenor Grows in Q2

ZTE Extends Bulgarian DWDM Deal

UPC Issues €300M Debt

Moscow CableCom Gives Update

Colt Reports Q2

ECTA Urges Euro Telecom Rethink

Jazztel Picks RAD for DSLAMs Over SDH

BT Boosts DSL Bandwidth

UK ISP Uses Sandvine

Golden Telecom Boosts Capacity

Golden Telecom Names CEO

KPN Picks Alcatel for DSL Upgrade

Alcatel Lands Sea-Me-We 4 & Med Cable

TA Closes Bulgarian Acquisition

Nortel, Unisystems Form Greek JV

Tiscali Italy Expands With UTStarcom

ECI Lands Romanian SDH Deal

O2 Germany Renews With Azure

— Ray Le Maistre, International News Editor, Light Reading

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