Optical/IP Networks

FT Buys Again in Spain

Orange (NYSE: FTE) has become Spain's second largest DSL service provider with the acquisition of Deutsche Telekom AG (NYSE: DT)'s Spanish ISP, Ya.com , for €320 million ($432 million). (See FT Buys Ya.com.)

And the two European giants are close to agreeing on another acquisition, as talks regarding the sale of FT's Orange Netherlands assets are nearing completion. Both parties, though, stress that, contrary to some media reports, no final deal has yet been signed for the Dutch mobile and broadband assets.

Spanish Broadband Consolidation
The sale of Ya.com has been planned since DT revamped its strategy back in March. As part of that revamp, the German carrier has already sold its French broadband business, Club Internet , to Neuf Cegetel Group (Euronext: NEUF) in a deal believed to be worth around €500 million (US$675 million). (See DT Plans M&A, IPTV Push and Eurobites: Buying & Selling.)

Vodafone España S.A. had also been named as a potential bidder in the past few months. (See Eurobites: M&A Hotbed.)

Buying Ya.com gives FT's Orange Spain business unit an extra 400,000 DSL subscribers and infrastructure that includes IPTV capabilities, including Microsoft Corp. (Nasdaq: MSFT)'s video delivery technology. (See Microsoft IPTV Hits Spain and Ya.com Launches IPTV.)

That takes its broadband total to nearly 1.1 million, making it Spain's second biggest DSL player, and third biggest broadband (DSL plus cable) service provider with a market share of 15 percent, just behind cable operator ONO , which has nearly 1.2 million broadband connections (16 percent market share).

Spain's broadband market leader is, not surprisingly, Telefónica SA (NYSE: TEF), which had 4 million DSL subscribers at the end of March, giving it a 56 percent market share. Jazztel plc , with 240,000 DSL lines, is the other main broadband player.

Like Telefónica, Orange Spain can offer service bundles of broadband and mobile, and it will look to sell its DSL services to its 11 million mobile customers. France Telecom acquired its way into the Spanish mobile market two years ago when it bought Amena. (See FT Takes on Telefónica.)

Ovum Ltd. analyst Sally Banks says FT has been targeting Spain in the past few years as one of the key markets where it can execute its NeXT strategy, which involves developing services such as fixed/mobile convergence and IPTV. (See Eurobites: Big Guns Fire Salvos and France Telecom Launches NExT.)

"France Telecom now owns an IP network, a DSL access network, a mobile radio, and a core network in Spain, offering serious competition to Spanish incumbent Telefonica," notes Banks in a research note.

The analyst team at Dresdner Kleinwort says the €320 million price tag looks "a touch low," but it believes this will likely be offset by a conservative price for the Orange Netherlands assets, which Dresdner thinks will be sold to DT any day now.

Dutch Double-Up
The sale of Orange Netherlands, which has nearly 2.1 million mobile customers and 528,000 DSL customers (end of March figures), to DT is imminent. While neither party is commenting on a proposed price, an industry source says the sale is set to be worth €1.3-1.4 billion ($1.75-1.9 billion).

The German incumbent says it is the preferred partner for the sale, and that talks are underway between the Orange Netherlands management team and the local Works Council about the conditions of the sale.

A DT spokesman notes that the Works Council doesn't have any powers to halt the sale process.

France Telecom has confirmed that talks have begun with employee representatives about a proposed sale to DT, which already has 2.6 million mobile customers signed up at its T-Mobile Netherlands subsidiary.

DT's CEO René Obermann said on March 1 that international mobile expansion was part of the new strategy, including consolidation in markets where T-Mobile International AG is already active. Now that looks to be happening in the Netherlands, and it has already taken place in Austria. (See T-Mobile Acquires tele.ring.)

As well as Germany, Austria, and the Netherlands, T-Mobile currently operates in the U.S., the U.K., Poland, the Czech Republic, Hungary, Croatia, Slovakia, Macedonia, and Montenegro. At the end of March this year it had 109.2 million mobile customers around the world -- 83.2 million in Europe, and 26 million at T-Mobile US Inc. .

But the DT spokesman adds that acquisitions of mobile assets in new markets are also possible.

— Ray Le Maistre, International News Editor, Light Reading

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