Debt burdened Telefonica spends billions on buying E-Plus

Nick_LondonNick_London Posts: 486
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Telefonica who has a massive debt mountain, is to acquire E-Plus in Germany.

This will make Telefonica (O2) the largest in Germany. O2 in the UK in theory is still the largest. EE is parented by two companies and still trades under there old brands.

O2 UK is catching up with EE regardless.

Have they got their priorities right? Should this money have been spent on improving what they already have?

Comments

  • japauljapaul Posts: 1,727
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    They announced this a little while ago but there was always a possibility that Carlos Slim would throw a spanner in the works. He now seems happy with the slightly improved deal.

    If Telefonica are serious about Germany and reducing their reliance on Latin America then this was always the likely play as O2 and E-Plus were looking like also rans against DT and Vodafone. They've already made a few disposals to create room for the additional debt.

    It still requires regulatory approval which incidentally could have some longer term implications for the UK. If approved at the European level then they are saying that 3 operators is acceptable for a market the size of Germany. It would then be hard to argue that the UK should be any different especially as the UK is already more competitive than Germany to start with. Assuming willing participants, any possible regulatory block on reducing the number of UK networks to 3 would seem much reduced.
  • enapaceenapace Posts: 4,303
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    Securing one of the biggest market's for telecoms in europe should certainly boost there profit. It will be interesting to see if this passes regulatory approval. I think it is unfair not to class EE as the biggest network in the UK they may be owned by two separate companies [who are planning to sell sometime next year] but they operate under one network not two lets be honest I expect it won't be long before T-Mobile and Orange fade completely they nearly have now. If you going use it in that way Verizon Wireless is not the biggest network in America as Vodafone own nearly half of it.
  • Deleted_User381237831Deleted_User381237831 Posts: 7,902
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    O2 in the UK in theory is still the largest. EE is parented by two companies and still trades under there old brands.

    So which imaginary theory is that? O2 isn't the largest. By a country mile.
  • enapaceenapace Posts: 4,303
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    So which imaginary theory is that? O2 isn't the largest. By a country mile.

    He basically saying that because they still use Orange and T-Mobile as brands they haven't completely merged yet so can't be counted as one network bit of a stupid idea but I understand what he says. Don't think he right but understand where he coming from.
  • jabbamk1jabbamk1 Posts: 8,942
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    So which imaginary theory is that? O2 isn't the largest. By a country mile.

    So based on enapace's post, which is the largest?
  • Deleted_User381237831Deleted_User381237831 Posts: 7,902
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    jabbamk1 wrote: »
    So based on enapace's post, which is the largest?

    EE is the largest. Yes it was created by the merger of two networks but they are owned by EE and fully integrated. Orange UK and T-Mobile UK are now sub-brands as such, running on EE.
  • jabbamk1jabbamk1 Posts: 8,942
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    EE is the largest. Yes it was created by the merger of two networks but they are owned by EE and fully integrated. Orange UK and T-Mobile UK are now sub-brands as such, running on EE.

    But O2 isn't that far behind like you suggest. Like Enapace said, if you're to take T-Mo and orange as two separate networks then O2 is the largest by a country mile. That's also what Nick_London was trying to say.
  • enapaceenapace Posts: 4,303
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    jabbamk1 wrote: »
    But O2 isn't that far behind like you suggest. Like Enapace said, if you're to take T-Mo and orange as two separate networks then O2 is the largest by a country mile. That's also what Nick_London was trying to say.

    I agree should be counted as one network let's be honest the brands orange and t-mobile will eventually disappear but they stay around for all major merger deals do at least for a while. Take Sprint it took the name Sprint Nextel when it merged with Nextel Communications. Now it has gone back to just Sprint it takes time for old names to disappear. But EE is one network it wouldn't be easy separate now even if it was possible.
  • Thine WonkThine Wonk Posts: 17,190
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    They promised the city that they would make disposals to meet the debt targets. It sounds like more disposals will have to be made if they want this deal.

    I'm not sure why we keep going on about Germany vs UK number of players in the market. Nobody in the UK wants to merge or sell right now, and our market is not the same as Germany in many ways.

    Germany isn't the centre of the universe either, many European countries have 4 or more networks. Nick keeps trotting out this Germany thing and suggesting we'll copy Germany purely on a regulatory basis.
  • enapaceenapace Posts: 4,303
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    Thine Wonk wrote: »
    They promised the city that they would make disposals to meet the debt targets. It sounds like more disposals will have to be made if they want this deal.

    I'm not sure why we keep going on about Germany vs UK number of players in the market. Nobody in the UK wants to merge or sell right now, and our market is not the same as Germany in many ways.

    Germany isn't the centre of the universe either, many European countries have 4 or more networks. Nick keeps trotting out this Germany thing and suggesting we'll copy Germany purely on a regulatory basis.

    I thought EE wanted to sell up.
  • japauljapaul Posts: 1,727
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    enapace wrote: »
    I thought EE wanted to sell up.
    EE's shareholders (Orange & Deutsche Telekom) want to sell some of it probably by floating it with an IPO. They had originally talked about doing it this year but it won't happen until 2014 at least as they need to give EE time to show some improvement in performance.
  • 1andrew11andrew1 Posts: 4,088
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    enapace wrote: »
    I thought EE wanted to sell up.
    It would be up to EE's shareholders (Orange and Deutsche Telekom) to decide a sale and not EE itself. EE would not be sold to a UK competitor. It could be retained, bought out entirely by Orange or Deutsche Telekom, be floated on the stock exchange, sold to a financial company or sold to a company which does not have a large mobile operation in the UK like Telekom Austria.

    For the record, the largest networks in the UK are:
    1) EE 26.1m
    2) O2 22.9m
    3) Vodafone 19.54m
    4) 3: 9.1m
  • enapaceenapace Posts: 4,303
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    japaul wrote: »
    EE's shareholders (Orange & Deutsche Telekom) want to sell some of it probably by floating it with an IPO. They had originally talked about doing it this year but it won't happen until 2014 at least as they need to give EE time to show some improvement in performance.
    1andrew1 wrote: »
    It would be up to EE's shareholders (Orange and Deutsche Telekom) to decide a sale and not EE itself. EE would not be sold to a UK competitor. It could be retained, bought out entirely by Orange or Deutsche Telekom, be floated on the stock exchange, sold to a financial company or sold to a company which does not have a large mobile operation in the UK like Telekom Austria.

    For the record, the largest networks in the UK are:
    1) EE: 26.1m
    2) O2: 22.9m
    3) Vodafone: 19.54m
    4) 3: 9.1m

    Thanks for the information

    Yeah if they do sell I can imagine AT-T will try to buy a certain amount they been on about a european based telecoms company for a while now.
  • japauljapaul Posts: 1,727
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    It's silly to treat EE as separate businesses and certainly in terms of customer numbers and revenues it's the biggest. Potentially the only case you could make for O2 UK being "bigger" is if you look at profit.


    Mobile Customers (at 30 June 2013) - EE: 25.288m, O2: 23.124m

    Mobile service revenue (12 months to 30 June 2013) - EE: £5806m, O2: £4770m

    Profit (EBITDA 12 months to 30 June 2013) - EE: £1130m, O2: £1337m
  • Step666Step666 Posts: 1,284
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    japaul wrote: »
    It still requires regulatory approval which incidentally could have some longer term implications for the UK. If approved at the European level then they are saying that 3 operators is acceptable for a market the size of Germany. It would then be hard to argue that the UK should be any different especially as the UK is already more competitive than Germany to start with. Assuming willing participants, any possible regulatory block on reducing the number of UK networks to 3 would seem much reduced.
    It has zero impact on the UK.

    The UK has always been a more competitive market than the likes of Germany or France, that's not going to change any time soon.
    And any decision Germany's equivalent of the competition commission makes has no bearing on what will happen in the UK - we are not beholden to internal German decisions.


    enapace wrote: »
    Securing one of the biggest market's for telecoms in europe should certainly boost there profit.
    Being the biggest player in a market doesn't automatically mean you'll be profitable.
  • enapaceenapace Posts: 4,303
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    Step666 wrote: »

    Being the biggest player in a market doesn't automatically mean you'll be profitable.

    Hmm you do have a point there but it certainly boosts the opportunities for profitability if they do good.
  • Step666Step666 Posts: 1,284
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    enapace wrote: »
    Hmm you do have a point there but it certainly boosts the opportunities for profitability if they do good.
    True.

    But the fact Telefonica have managed to dig themselves into their current hole does raise questions over their business nous. I'd say there's a lot of evidence to suggest that they would be able to screw this up.
  • enapaceenapace Posts: 4,303
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    Step666 wrote: »
    True.

    But the fact Telefonica have managed to dig themselves into their current hole does raise questions over their business nous. I'd say there's a lot of evidence to suggest that they would be able to screw this up.

    True though I can see if they manage to make O2 Germany a profitable business then selling of somewhere like O2 UK to someone to lower there debt.
  • japauljapaul Posts: 1,727
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    Step666 wrote: »
    It has zero impact on the UK.

    The UK has always been a more competitive market than the likes of Germany or France, that's not going to change any time soon.
    And any decision Germany's equivalent of the competition commission makes has no bearing on what will happen in the UK - we are not beholden to internal German decisions.
    I think you've misunderstood as it's not a case of being beholden to internal German decisions and we are not going to have German laws thrust upon us if that is your concern. However whilst the German Federal Cartel Office (similar to our Office of Fair Trading) will have aspects to examine, the primary authority here is the European Union applying European Competition law as there are cross border aspects (just as it would in the UK). If you don't believe me then just look at EE which the OFT simply referred to the European Commission to investigate. All of the concessions were submitted to the Commission and when they cleared it the OFT simply rubber stamped it. This is right and proper in a single market as you can't have national governments putting up artificial obstacles.

    Now before anyone misunderstands me, I am not saying that this leads to a reduction in the UK, just that it makes it more likely as one hurdle will have been removed. None of the networks are particularly happy in the UK as it's more competitive with lower margins which consolidation might solve. However the thinking has been this couldn't really happen as it would probably be blocked by competition authorities. However if the EU gives the green light to a reduction to 3 in another large market that is already less competitive then they can hardly do different if the same question ever arose in the UK.

    Is that clearer? It would still take two to tango and it might be 5 years or more away. All I am saying is that it would become more likely than before.
  • enapaceenapace Posts: 4,303
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    japaul wrote: »
    I think you've misunderstood as it's not a case of being beholden to internal German decisions and we are not going to have German laws thrust upon us if that is your concern. However whilst the German Federal Cartel Office (similar to our Office of Fair Trading) will have aspects to examine, the primary authority here is the European Union applying European Competition law as there are cross border aspects (just as it would in the UK). If you don't believe me then just look at EE which the OFT simply referred to the European Commission to investigate. All of the concessions were submitted to the Commission and when they cleared it the OFT simply rubber stamped it. This is right and proper in a single market as you can't have national governments putting up artificial obstacles.

    Now before anyone misunderstands me, I am not saying that this leads to a reduction in the UK, just that it makes it more likely as one hurdle will have been removed. None of the networks are particularly happy in the UK as it's more competitive with lower margins which consolidation might solve. However the thinking has been this couldn't really happen as it would probably be blocked by competition authorities. However if the EU gives the green light to a reduction to 3 in another large market that is already less competitive then they can hardly do different if the same question ever arose in the UK.

    Is that clearer? It would still take two to tango and it might be 5 years or more away. All I am saying is that it would become more likely than before.

    If a merger did happen who do believe it would be between out of curiosity ?
  • japauljapaul Posts: 1,727
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    enapace wrote: »
    If a merger did happen who do believe it would be between out of curiosity ?
    I think you would rule out EE + anyone as being too big so you are left with either Three + Vodafone or Three + O2. If Telefonica ever got to the stage of needing to do something drastic because of their debt situation then the latter is a possibilty as in Ireland with Hutch buying O2. If on the other hand, Hutch decide on an exit sometime down the line then I think it would be Vodafone acquiring Three. 50/50 might be hard to stomach for Vodafone in it's home market especially after the mess the two of them made in Australia.
  • japauljapaul Posts: 1,727
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    Stephane Richard (Orange CEO) reckons that if Telefonica's bid for E-Plus in Germany is allowed "it will create an earthquake in Europe" forcing other countries to reconsider their positions on consolidation.

    This is the kind of thing I was trying to get at. We really shouldn't underestimate it's potential impact on other European countries. Richard now reckons that the optimum number per market is 3 instead of 4.

    http://www.bloomberg.com/news/2013-09-09/orange-sees-german-wireless-merger-approval-triggering-shakeup.html
  • enapaceenapace Posts: 4,303
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    japaul wrote: »
    Stephane Richard (Orange CEO) reckons that if Telefonica's bid for E-Plus in Germany is allowed "it will create an earthquake in Europe" forcing other countries to reconsider their positions on consolidation.

    This is the kind of thing I was trying to get at. We really shouldn't underestimate it's potential impact on other European countries. Richard now reckons that the optimum number per market is 3 instead of 4.

    http://www.bloomberg.com/news/2013-09-09/orange-sees-german-wireless-merger-approval-triggering-shakeup.html

    Interesting I can't see it happening in UK but it will be curious to see if the deal goes through. If I remember right Three Ireland' s buyout of O2 Ireland is still waiting for approval as well.
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