Driving revenue growth in Western Europe
23 January 2008
Western Europe proves tough-going for Vodafone and T-Mobile, says Gavin Patterson.
The ever-increasing importance of cultivating new revenue streams in the face of maturating European markets was effectively highlighted by a couple of recent announcements from two of the world's largest mobile investment groups - Vodafone and T-Mobile.
While the markets specified by Vodafone and T-Mobile were markedly different in terms of location, the aims of both groups were wholly comparable - namely to drive revenue growth.
Both Vodafone and T-Mobile experienced challenging business environments in a number of their core European markets last year, with T-Mobile reporting revenue in Germany actually fell by 2.5 per cent year-on-year to Eur2.01 billion in 2Q07 despite a 13 per cent increase in subscriptions.
T-Mobile's operation in Eastern Europe - namely the Czech Republic, Hungary, Slovakia, Croatia, Macedonia and Montenegro all performed much better with revenue growth ranging from 6.9 per cent in Hungary [beating the US (6.1 per cent), the UK (5 per cent), Netherlands (6.7 per cent) and Austria (3.5 per cent)] to 50 per cent in Montenegro.
Meanwhile, Vodafone reported organic revenue growth in western Europe was just 2 per cent for the six months ended 30 September, 2007, due to "significant" competitive and regulatory pressures.
"Good revenue growth in Spain and the UK was offset by declines in Germany and Italy, where specific competitive and regulatory events have detracted from an otherwise solid business performance," the company said.
In contrast, organic growth in Eastern Europe, Middle East, Africa and Asia Pacific (EMAPA) was 16 per cent, rising to almost 40 per cent when reflecting acquisitions in India and Turkey.
However, at the beginning of 2008 Vodafone's chief executive officer, Arun Sarin, said the UK business was also showing cause for concern. "We are seeing some headwinds in the business - not alarming but certainly worth watching very carefully," he said. Sarin went on to say that the company had identified "important acquisitions" in Asia and Africa that the company wants to make in 2008.
Vodafone is reportedly the front-runner for a strategic stake in Telekom Malaysia's cellular spin-off, RegionCo, and is looking to increase its ownership of South Africa's Vodacom, Safaricom in Kenya and Vodafone Egypt.
Vodafone would have to spend up to $3 billion for a 25 per cent stake in RegionCo, while Telkom Kenya is expected to raise KES30-40 billion ($450-600 million) through the IPO of 25 per cent of Safaricom.
Telkom, the country's state-owned incumbent, now owns 60 per cent of Safaricom while Vodafone owns 35 per cent. In 2005, Vodafone tried to increase its stake in Safaricom to 51 per cent by buying additional shares from Telkom, but was turned down by the Kenyan government.T-Mobile wants Pole position
Earlier this month, T-Mobile was reported to have filed a $5.8 billion lawsuit against Poland's Elektrim over what it alleges are lost revenues resulting from the seven-year struggle with Elektrim and Vivendi for control of Polish cellco, Polska Telefonia Cyfrowa (PTC).
Although PTC is now effectively managed by T-Mobile, the German company is in dispute with Vivendi over ownership of a 48 per cent stake in PTC.
The dispute started in 1999 when Vivendi spent Eur2 billion to buy 51 per cent of PTC through a joint venture with Elektrim, prompting a series of arbitrations and lawsuits with Deutsche Telekom. The German company owns the remaining 49 per cent of PTC and claims the deal violated a shareholder pact it had with Elektrim to exercise a call option on a further 48 per cent of PTC's shares.
In October, 2006, DT actually agreed to pay Eur600 for Elektrim's 48 per cent stake in PTC, but Vivendi claims Elektrim cannot sell the stake as it is actually owned by Telco, a holding company controlled by jointly by Elektrim and Vivendi.
Vivendi, Deutsche Telekom, Elektrim and Elektrim bondholders are now embroiled in more than 50 legal disputes related to PTC in five European countries as well as the U.S.
PTC has had fluctuating fortunes in Poland, losing its top spot in 4Q06 when it was overtaken by Orange (Centretel) before dropping to third place in 1Q07 when Polkomtel also surpassed the operator in terms of subscriptions. At the end of 2007, PTC had 31.4 per cent market share, against 33.51 per cent for Polkomtel and 33.56 per cent for Orange. P4 had just 1.53 per cent market share.
T-Mobile started including accounts for PTC in 1Q07 and reported 9 per cent revenue growth in 2Q07 on the back of a 1.2 per cent rise in subscriptions. The only countries with higher quarterly revenue growth in 2Q07 were Croatia, Macedonia and Montenegro.Oger eats up Telemobil
Eastern Europe has also attracted interest from Saudi Oger, the UAE-based holding vehicle of Oger Telecom, which last week acquired control of Romanian mobile operator Telemobil (Zapp).
Oger acquired 50 per cent of Telemobil parent Inquam from U.S.-based chipset maker Qualcomm. It already owned 50 per cent of Inquam through its investment fund Omnia Holdings. Inquam is also deploying a CDMA2000 network in Portugal.
Telemobil became the first operator in the world to launch commercial 3G wireless services using CDMA technology in the 450MHz frequency band, and recently won a UMTS license in the 2100MHz band.
The acquisition will further cement Saudi Oger's presence in Europe without requiring it to pay huge amounts for expansion. In June, Inquam announced that it had signed a definitive agreement to acquire a 65 per cent controlling interest in WiMAX Telecom, which has nationwide wireless-broadband-spectrum licenses in Austria and Slovakia and a major spectrum license in Croatia, and Oger now indirectly owns 58.5 per cent of WiMAX Telecom.
WiMAX Telecom's licenses reside in the 3.5GHz frequency band and cover a population of about 16.8 million. The Austrian spectrum license authorizes service providers to offer full mobility services.
Gavin Patterson is a principal analyst with Informa Telecoms & Media
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