Hutch Soars on 3 Italia Sale Report

Hutchison Whampoa Ltd. (Hong Kong: 0013; Pink Sheets: HUWHY)'s stock soared 6 percent today on the Hong Kong stock exchange on a report that it was considering the sale of its Italian 3G operator 3 Italia .

3 Italia is Hutchison's largest European 3G operator in terms of subscribers with 7.7 million customers as of August 22 this year. In Italy, 3 is the fourth and smallest operator with a 7 percent market share. Telecom Italia Mobile SpA (Milan: TIM) has a market share 43 percent, Vodafone Italy has 31 percent, and Wind Telecomunicazioni SpA has 19 percent, according to Dresdner Kleinwort .

Dresdner Kleinwort analyst Lawrence Sugarman says in a research note that the report of a 3 Italia sale was surprising. "Hutch recently conducted a review of its mobile operations in Europe and seemed to conclude that they were not for sale," he says. "In the past both Wind and Hutch have been rumored to be sellers in Italy."

Sugarman estimates the price of 3 Italia to be between €8 billion ($11 billion) and €10 billion ($14 billion). The potential buyers are Orange (NYSE: FTE), Deutsche Telekom AG (NYSE: DT), and even Wind, according to Sugarman.

If 3 is acquired, that would be good news for TIM and Vodafone because 3 has been "historically the price leader."

3 Italia would not comment on the report.

The operator has been looking to cut costs and sell certain assets recently. It has a memorandum of understanding with Wind to combine their cell site towers and sell them to a third party and then lease back tower space. The sale of these assets could bring in between €1.5 billion ($2 billion) and €2 billion ($3 billion) for the operators. (See Wind & 3 to Cast Off Masts.)

In its first half year results, Hutchison said that 3 Italia is "reviewing cell site and other infrastructure sharing joint venture opportunities to further reduce its costs and exploit synergies."

Hutchison's Italian ARPUs have been hit by a new Italian regulation called the Bersani decree, which prevents operators from charging customers a fee for topping up their prepaid cards. Prepaid customers make up 73 percent of 3 Italia's customer base.

Hutchison attempted to spin off the Italian business last year, but canceled the IPO plans, blaming weak conditions in the European telecoms market. (See Hutchison Delays 3 Italia IPO and Hutchison Defers 3 Italy IPO.)

— Michelle Donegan, European Editor, Unstrung

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