All Buyers No Sellers as Nordic Phone Companies Seek Mergers

Dec 23, 2013 3:25 am ET

(Updates with share prices in last paragraph.)

Dec. 23 (Bloomberg) -- Scandinavia’s biggest phone companies agree takeovers would benefit the region and corporate earnings. There’s just one obstacle -- no one is selling.

Sweden and Denmark have too many carriers vying for video- gobbling smartphone and tablet users, with four main players each. In Norway, Ukrainian-born billionaire Len Blavatnik’s Access Industries Holdings Inc. recently stunned a trio of existing carriers by buying spectrum for a new fourth-generation network.

“It’s a crowded market but that doesn’t mean anything is going to happen,” Kjell-Morten Johnsen, head of Telenor ASA’s European unit, said in an interview in Stockholm. There’s “no way” Telenor or TeliaSonera AB will exit Sweden and Tele2 AB and 3 Scandinavia, owned by billionaire Li Ka-shing’s Hutchison Whampoa Ltd., haven’t shown an interest in backing out, he said.

Telenor, TeliaSonera and Tele2 have cited willingness to stay in their home markets, where they all have long histories, while 3 Scandinavia continues to invest to expand its European footprint. With carriers struggling to make more money on a surge in data use at the same time as needed network improvements raise costs, profit may continue to stall for the foreseeable future.

“That’s just the way it is,” Johnsen said. “It’s easy to see why we’ve been more focused on Asia.”

Tough Competition

Even as consumers increasingly use mobile devices to view video, listen to music and browse the Web, falling prices have meant rising demand isn’t translating to sales growth. Stockholm-based TeliaSonera’s mobile revenue fell 0.5 percent in Sweden in the third quarter. Fornebu, Norway-based Telenor’s domestic mobile sales fell 3.3 percent. The tough competition has prompted the companies to expand in Asia and Eastern Europe.

Reducing the number of carriers in individual markets to three from four would help them benefit from their scale and save money, according to Johnsen.

“It’s a waiting game as operators know consolidation would ease their competitive pressures, but deals of this scale take a lot of resources and antitrust issues are a big question mark,” said Mikko Ervasti, an analyst at Evli Bank Plc in Helsinki. “Somebody needs to make the first move.”

The European Commission on Dec. 20 opened an in-depth probe of Telefonica SA’s purchase of Royal KPN NV’s E-Plus unit in Germany. The commission’s ruling, scheduled for May 14 at the latest, will set the tone for future mergers, TDC A/S Chief Executive Officer Carsten Dilling said earlier this month. He said the Nordic market “is mature and ready for consolidation.”

Service Push

Telenor’s Johnsen is working hard to reshape the company’s Danish unit. He said combining Telenor’s No. 2 position with incumbent TDC, which has about 40 percent of the local mobile market, is an unlikely, “very complicated” deal.

Tele2 CEO Mats Granryd has promised to be on the buying side if consolidation happens in his home market. Hutchison, based in Hong Kong, wants more Nordic phone assets, a person familiar with the situation said last month. Salomon Bekele, a TeliaSonera spokesman, referred to the company’s recent investments in the region, declining to comment further.

While he’s waiting to buy, Telenor’s Johnsen said he envisions his company increasingly competing with add-on services and not just the basic infrastructure. The company bought Tele2’s Swedish residential fiber and TV unit for 775 million kronor ($118 million) in October. Johnsen said Telenor would continue its fiber expansion.

Bigger Pie

TeliaSonera is investing 5 billion kronor through next year to expand its mobile and fixed infrastructure throughout Sweden, while TDC’s Dilling said he is focused on profitability by bundling mobile, TV and Internet services, rather than trying to compete on price in Denmark.

The price operators charge for mobile data in Denmark has fallen as four national carriers seek new customers, making it more difficult to make needed investments in networks, said Fredrik Thoresen, an analyst at DNB ASA in Oslo.

With so much competition for mobile customers, carriers need to focus more on increasing revenue and better linking the amount of data used to how much a customer pays, Johnsen said.

“I would definitely be happy to keep the market share and grow the revenues,” he said. “I’d much rather have the same part of a bigger pie than a bigger part of a smaller pie.”

Telenor rose 0.3 percent to 145.5 kroner at 9:21 a.m. in Oslo trading. TeliaSonera climbed 0.2 percent to 53.25 kronor while Tele2 declined 0.1 percent to 72.9 kronor in Stockholm. TDC advanced 0.7 percent to 52.3 kroner in Copenhagen.

--Editors: Kim McLaughlin, Ville Heiskanen