Telecoms industry in talks about concentration

The telecommunications market has not stopped looking at means of consolidation, as despite the end to talks between cell phone operators Vodafone and Wind, negotiations between various service providers continue as the recession deepens and shareholders refuse to invest fresh capital.

Sources suggest that some of the main private telecom providers (Wind Hellas, Vodafone-Panafon, Forthnet and Hellas Online) are discussing possible mergers.

Talks are conducted on various levels, i.e. among company shareholders or financial advisers. Regarding a possible merger between Wind and Forthnet, this is not the first time the two companies have entered negotiations. They were also locked in talks last summer, but this came to an abrupt end due to the start of discussions between Wind and Vodafone.

Forthnet and Wind had examined the possibility of a merger through share exchange and without cash. Had this borne fruit, it would have created a telecom group with a strong presence in cell telephony (3 million customers), in landline telephony (800,000 customers) and in pay TV (over 300,000 customers).

There had also been similar negotiations between Forthnet and Hellas Online, but the high debt obligations of the two companies averted a deal.

Forthnet and HOL shareholders are clearly seeking to disengage themselves from their investment as the recession bites ever harder in Greece and banks reduce the chances of raising cash. The disengagement effort is evident in the shareholders? refusal to invest fresh funds, opting instead for market concentration.

The possibility of a Wind-HOL deal appears more remote as Vodafone is a stakeholder in the latter (with an 18 percent share) and has not made clear its intentions regarding landline telephony in Greece. Although many had forecast a HOL buyout by Vodafone in the past, the British-owned cell phone operator did not even participate in the recent HOL share capital increase.

While Forthnet and HOL have considerable debts from loans, Vodafone and Wind have zero loans and are attractive to alternative telecom suppliers. The high operating earnings (EBITDA) of the cell networks mean creditors will likely get their money back from the landline companies in debt. Forthnet owes some 350 million euros to banks and HOL an estimated 200 million. As a result creditors have every reason to apply pressure for a concentration of Greece?s telecom market, so as to have their loans repaid. This explains the talks between the banks crediting the two landline service providers.

On the other hand, HOL and Forthnet will be able to offer added value to the mobile phone networks. Each controls 10 percent of landline telephony, having some 500,000 customers apiece. Most of them are double-play customers, i.e. Internet and telephony. Such a client base is not insignificant, as if it is added to the 300,000 landline customers of the former Tellas network that now belongs to Wind Hellas, it creates a considerable rival to market leader OTE telecom.

Developments will not take long to bear fruit as the market is now reaching a high level of maturity and pressure on revenues and profits is growing ever stronger. The broadband Internet market that had for a long period maintained the expansion of the client base of landline companies has matured and any increase in market share can only be secured now through the departure of customers from other service providers, which is quite costly to achieve.