Danish and French take on Swisscom

City A.M. Reporter
FRANCE Telecom yesterday struck a deal with Danish peer TDC to boost their position in the small but affluent Swiss market and challenge local leader Swisscom.<br /><br />France Telecom will pay &euro;1.5bn (&pound;1.35bn) for a 75 per cent stake in a new company that has the assets and clients of TDC&rsquo;s Sunrise and France Telecom&rsquo;s Orange in Switzerland, in a deal that resembled a recent bigger operation for the British market with Deutsche Telekom.<br /><br />The new operation will have about 38 per cent of the Swiss mobile telephony market and 13 per cent of fixed broadband connections.<br /><br />The deal comes as European telecom operators are seeking ways to cut costs and improve profitability in mature markets with few growth prospects.<br /><br />One solution for telecom groups is to buy out rivals to reduce competition in crowded markets, such as France Telecom is doing in Switzerland. Another is to sign infrastructure-sharing deals with competitors to reduce costs.<br /><br />&ldquo;We think this will be a very successful combination in Switzerland and will allow us to compete with the strong market leader,&rdquo; France Telecom&rsquo;s finance director Gervais Pellissier, said at a conference call, referring to Swisscom.<br /><br />The move fits with France Telecom&rsquo;s M&amp;A strategy of doing deals to improve its position in the mature countries where it is already present, while also keeping an eye out for expansion opportunities in emerging markets.<br /><br />&ldquo;We will see whether there are more places in which we can do in-market consolidation like we did in the U.K and in Switzerland, but this may be the end for now,&rdquo; said Pellissier on the conference call.<br /><br />Serge Rotzer, Swisscom analyst at Vonotobel, wrote that the merger was actually positive for Swisscom because &ldquo;regulation should become less intense&rdquo; and that &ldquo;competition is unlikely to intensify&rdquo; because the new player will not cut prices.<br /><br />The new player, to be headed by the chief executive of Orange Switzerland Thomas Sieber, could generate synergies with an estimated net present value of &euro;2.1bn. The deal must be reviewed by Swiss competition authorities.