TDC CEO Says Danish Phone Price War May Signal More Mergers

TDC A/S Chief Executive Officer Henrik Paulsen
TDC A/S Chief Executive Officer Henrik Paulsen. Source: TDC via Bloomberg

TDC A/S, Denmark’s largest telephone operator, predicts the country’s mobile-tariff price war may lead to more mergers and acquisitions, its chief executive officer said in an interview.

“Very intense price competition over the past nine months has reduced the total profit pool,” Henrik Poulsen said at the company’s headquarters in Copenhagen. “There could be a need for additional consolidation for the Danish market to really regain its health.”

TDC bought mobile operator Onfone last month for 313 million kroner ($60 million), removing a competitor that drove down monthly bills on the cheapest contracts by as much as 50 percent. Rivals TeliaSonera AB and Telenor ASA agreed last week to combine wireless networks in Denmark.

TDC is still controlled by private equity firms after its

10.7 billion-krone share sale last year. Apax Partners LLP, Blackstone Group LP, KKR & Co., Permira Advisers LLP and Providence Equity Partners Inc. sold TDC shares at 51 kroner each in December, reducing their combined stake to 59 percent and agreeing to lock up their remaining shares for six months, a period that expired June 7.

Before today, the stock had declined 7 percent this year in Copenhagen trading. It lost 0.3 percent to 44.91 kroner at 9:16 a.m., valuing the company at 37.1 billion kroner.

TeliaSonera, Hutchison

Options for consolidation in the industry include TeliaSonera buying TDC, or TDC merging its network with 3, the mobile-phone company of Hong Kong billionaire Li Ka-shing’s Hutchison Whampoa Ltd., said John Strand, owner of Copenhagen-based Strand Consult, which advises telecommunications carriers.

“TeliaSonera taking over TDC has become less likely since they made the agreement with Telenor,” Strand said. “If the network merger isn’t effective, this could be TeliaSonera’s plan B in Denmark.”

It’s in the hands of TDC’s the private-equity owners “to decide whether they’re going to continue the exit,” Poulsen said in the June 20 interview.

TDC doesn’t intend to make large takeovers that could jeopardize its credit rating or dividend policy, though Poulsen does see room for “small bolt-on acquisitions” in areas such as hosting for corporate customers. The company sells communication over fiber trunk lines and other business services in Sweden, Finland, Norway as well as Denmark.

Profit Margins

Poulsen says there is room for more widespread adoption of smartphones in Denmark, as well as TV on demand. The company offers digital video rental to TV customers and is rolling out a multiplatform music library and TV apps for news sites that mirror those on computer screens and iPads.

Those services helped TDC to post a margin for earnings before interest, taxes, depreciation and amortization of 41 percent last year and in the first quarter.

TDC will keep Onfone for the time being alongside its other budget brands. In a few weeks, Onfone’s customers will be migrated onto TDC’s network. As a so-called virtual mobile operator, Onfone has been using Telenor’s network.

“I don’t think the price war will ever completely end,” Poulsen said. “But we’ve been through an extraordinary situation that is now stabilizing.”

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