France Telecom SA’s relentless focus on the profitability of its foreign investments has led to its decision to withdraw from the Danish market.
Orange SA, the mobile phone unit of France Telecom, has agreed to offload its 100% owned Danish subsidiary, Orange A/S, to Scandinavian mobile operator TeliaSonera AB. Under terms of the deal, Orange Denmark will be sold for 600m euros ($744m) in cash, less the net debt of Orange A/S at closing.
Demark, with a population of 5.4 million inhabitants, is considered to be one of the most competitive mobile markets in Europe. The acquisition will reduce the number of mobile operators in the country from four to three.
According to a report by the Danish National IT & Telecom Agency, at the end of 2003 TDC A/S was the market leader with a 34% market share, while Sonofon A/S occupied second place with 22%. Orange Denmark was third with 12%, and TeliaSonera last with 10%.
The acquisition means TeliaSonera now has two GSM networks in Denmark, and will generate cost savings of roughly 51m euros ($63m) by closing down one of overlapping networks. It also anticipates modest capital expenditure savings as it expects to buy less kit.
Orange Denmark is profitable, in stark contrast to TeliaSonera’s own Danish unit, and in 2003 it generated revenue of 258m euros ($320m). Its 605,000 customers are to be added to TeliaSonera’s own Danish mobile network, leaving the Nordic telecoms group with roughly 1.1 million subscribers in Denmark. Despite the subscriber increase, the merged entity will still occupy third position.
France Telecom’s rationale for the sale most likely lies with its focus on the profitability of its foreign investments. Although Denmark was profitable, it is thought to have failed to match an internal profitability yardstick.
France Telecom has already decreased its exposure in Thailand, and also withdrew from Sweden after balking at the expense of building a 3G network.
The transaction is subject to approval by the EU Commission and the Danish regulator, and the deal is expected to close before the end of October.