The Carphone Warehouse Plc became the UK’s leading alternative telecoms provider using carrier pre-selection with a deal to pay up to 154.2m pounds ($271.8m) to acquire the Onetel group from utilities company Centrica plc.
Onetel will add 1.1 million carrier pre-select customers to the 1.06 million who use Carphone’s TalkTalk service, which was launched in 2005.
Carphone said the acquisition of Onetel propelled towards a position of being number one alternative provider and gave it a substantial platform of profitable voice customers from which to launch its drive into the broadband market in 2006.
With many alternative telecoms providers looking to unload their unprofitable operations, Carphone Warehouse is also paying 8.5m pounds ($14.9m) for Tele2 UK Communications Ltd and Tele2 Telecommunications Services Ltd (Ireland) from Pan-European telecoms company Tele2 AB.
Carphone Warehouse is assuming liability for 2m pounds ($3.5m) of cash restructuring costs.
Tele2 had approximately 188,000 customers in the UK and 36,000 in the Republic of Ireland and they will be migrated to Carphone’s own network under the TalkTalk brand.
The two deals give TalkTalk a customer base of approximately 2.4 million customers with an incentive to recruit friends to the service because TalkTalk customers can make free calls to each other. Only merging cable operators NTL and Telewest have more telecoms customers.
Onetel also gives it 250,000 indirect access customers, 60,000 who use broadband services and 40,000 mobile. In addition, there were 50,000 business customers.
Carphone Warehouse, which build its fortunes on a chain of mobile phone shops, has now become a serious player of the market of telecoms services. In the year to December 2004, Onetel revenue was 280m pounds ($493.7m) and the operating profit was 3m pounds ($5.3m). As margins have been squeezed, it has slipped deep into the red this year.
However, Carphone believes it has the scale to turn the operation around. It forecasts that the acquisition will increase current year pre-tax profits by approximately 4m pounds ($7m) and next year’s pre-tax profits by approximately 20m pounds ($35.3m).
Carphone will pay 132m pounds ($232.7m) cash up front and up to a further 22.2m pounds ($39.2m) over the next three years if recruitment targets for new Onetel customers through Centrica’s network are met.
The deal adds to the competitive pressure on incumbent BT Group Plc. While most of its customers use its services through carrier pre-selection, the drive into broadband will be essential if its can match BT’s range of services. Now with 120,000 broadband customers selling a re-badged BT service, it will move into local loop unbundling early next year.