Vodafone and 3 Group eye European deals

Vodafone could bid for second wireline operator, Fastweb of Italy, while Hutchison may add O2 Ireland to its 3 portfolio

The long awaited shake-up in the European telecoms landscape may be kicking off at last, with a string of mergers and acquisitions, mainly of second tier operators. Deals and negotiations in Austria, Holland, Spain and elsewhere have been going on, and the latest talks center on Italy and Ireland. In the former, Vodafone may seek to add fixed line operator Fastweb to its empire, while Telefonica could sell its O2 Ireland unit to 3 Group.

Vodafone is trying to build up fixed line businesses and partnerships to enable it to compete in the quad play space, essential for boosting its share of consumers’ telecoms and media spend, in the increasingly saturated European markets. The company, which once gained from its mobile-only strategy, has recently been heavily exposed to slowdown in cellular spending in recession-hit southern Europe.

Its current key target for fixed line expansion is German cableco Kabel Deutschland but it also has its eyes on Fastweb, according to Bloomberg. The UK-based corporation may be able to afford several acquisitions if, as widely expected, its sells its 45% stake in Verizon Wireless for an estimated $100bn. But while that deal would generate cash, it would also make it essential for Vodafone to offset the loss of US revenues, with growth in Europe and emerging markets.

Bloomberg reports that Vodafone has already made two informal approaches for Fastweb, one this year and one in 2011, which were rejected by current owner Swisscom. Fastweb has 1.86m broadband access lines and is in the process of expanding its fibre optic network.

Over in Ireland, local newspapers claims Hutchison’s 3 Ireland unit could make a bid for O2, though it could face counterbids from pan-European cable giant Liberty Global, and from incumbent telco Eircom. Liberty already owns Ireland’s largest cableco, UPC Ireland and may be looking to add a wireless element to its offering, as it has in other markets via cellco deals or Wi-Fi hotspots.

O2 Ireland, currently owned by Telefonica of Spain – which is looking for ways to reduce its debt – is the second mobile operator in the country, with 1.53m subscribers, behind Vodafone with 2.16m and ahead of Eircom’s Meteor unit and 3 Ireland, the fourth player with just 500,000 customers.

According to Spanish newspaper Cinco Dias, Telefonica would look to raise between €700m and €800m from the sale of O2 Ireland, despite the cellco’s struggles – in the first quarter, its revenue fell by 12.2% to €136m. The Spanish giant has appointed Bank of America Merrill Lynch to advise on the sale.

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