Orange and Sunrise Merger (article from NYT)
France Télécom said Wednesday that it would pay 1.5 billion euros ($2.27 billion) to merge its Swiss subsidiary with Sunrise, Switzerland's No. 2 operator, in an effort to challenge the state-owned market leader, Swisscom.
France Télécom said that it planned to combine Sunrise, which is owned by TDC of Copenhagen, and its Orange Switzerland in a new entity with 3.4 million customers and a 38 percent market share. France Télécom will own 75 percent of the new company, while TDC will retain 25 percent.
"This will really provide us with the critical mass we need in the Swiss market," said Olaf Swantee, the Orange executive vice president in charge of France Télécom's mobile businesses.
The merger is the second deal in three months for France Télécom, which in September announced plans to combine its unprofitable British operator, Orange U.K., with another struggling operator, T-Mobile U.K., in a 50-50 joint venture.
In Switzerland, Orange and Sunrise were fighting an uphill battle against Swisscom, which is 57 percent owned by the Swiss government and has 62 percent of the mobile market, according to IE Market Research in Vancouver, Canada.
"This is a relatively small market, and Swisscom is very dominant, so you can't have a proliferation of small players in that kind of environment," said Emma Mohr-McClune, an analyst at Current Analysis in Freiburg, Germany.
Europe's mobile markets are largely saturated, and some smaller operators have been struggling amid intense competition and as European regulators have capped roaming and termination rates.
In Switzerland, the average monthly revenue per cellphone customer is expected to fall 23 percent over the next four years, from 57.2 Swiss francs ($57), this year to 44.20 francs, according to IE Market Research.
Philip Kendall, an analyst at Strategy Analytics in London, said: "We are clearly in a saturated market environment in Europe. When you add into the mix the regulatory pressure on roaming and mobile termination rates and sluggish expenditure during the recession, all operators are looking at ways of cutting costs."
The fusion of Sunrise and Orange Switzerland, the No. 3 operator in the country, would reduce the number of mobile network operators in Switzerland to just two - Orange and Swisscom.
Even so, Gervais Pellissier, France Télécom's chief financial officer, said he was confident of obtaining Swiss regulatory approval for the purchase because Switzerland also had eight virtual mobile operators, which are service resellers, besides the three existing network operators.
"The proposal we have today will create a stronger telecom operator on the Swiss market," Mr. Pellissier said. "In the end, this will benefit Swiss consumers."
TDC is majority-owned by five private equity firms: Apax Partners, Blackstone, Kohlberg Kravis Roberts, Permira and Providence Equity Partners.
