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Czech Regulator Opened Bidding in Mobile Spectrum Tender

Telefonica Czech Republic
A pedestrian passes an 02 mobile phone store operated by Telefonica Czech Republic AS in Prague. Photographer: Martin Divisek/Bloomberg

The Czech Republic opened bidding in a mobile spectrum tender today, less than a week after Spain’s Telefonica SA agreed to sell the country’s largest phone company to the richest Czech.

Telefonica Czech Republic AS, in which billionaire Petr Kellner’s PPF Group NV agreed on Nov. 5 to buy a majority for about $3.4 billion, is vying for frequencies sold by the Czech Telecommunications Office, along with existing rivals T-Mobile Czech Republic AS and Vodafone Czech Republic and two newcomers.

“Apart from PPF, which is to buy Telefonica, there aren’t any other credible new candidates to enter the market,” Erste Group AS analyst Vera Sutedja said by phone. “The distribution of frequencies” following the tender “and the price Telefonica will pay will be important news for minority shareholders as it might influence the buyout offer.”

The regulator, known as CTU, wants the auction to expand competition in the local market, long dominated by the three large telecommunication providers, by allocating a frequency band to a new player. Revolution Mobile, a former unit of PPF, and Czech billionaire Karel Komarek’s Sazka Communications, are also participating.

CTU opened bidding for the spectrum at 10:30 a.m., it said in an e-mailed statement. Five participants are taking part and bidding should finish by end-December, it said.

Seven-Year Requirement

The auction rules require winners to hold the frequencies for at least seven years before being allowed to sell them. CTU expects the auction, which includes frequencies that will enable providers to offer new 4G mobile services, to raise at least 8.72 billion koruna ($432 million).

Kellner’s investment company will buy a 65.9 percent stake in Telefonica CR for 305.6 koruna a share. It withdrew in September from the planned auction, citing conditions that preclude it from merging with a rival for 15 years, and sold the unit to its executive officer.

Telefonica fell 2 koruna, or less than 1 percent, to 298 koruna in Prague trading.

Also, Deutsche Telekom AG agreed to buy GTS Central Europe for 546 million euros ($730 million) from private equity firms including Columbia Capital, HarbourVest Partners, adding land-line networks in Poland, the Czech Republic, Hungary and Romania, it said yesterday.

Failed Auction

The tender is a repeat of one that failed in March when the regulator ruled that bids exceeding 20 billion koruna risked triggering an unwanted jump in prices for users. PPF was the only newcomer bidding against the existing three operators.

The price shouldn’t reach “such levels” in the current sale because PPF is not trying to enter as a newcomer, according to Erste Group’s Sutedja. The business case for a fourth player would not be an “easy one with the market penetration rate already exceeding 130 percent,” Sutedja said.

Operators across the globe are rushing to build faster networks based on Long Term Evolution, or LTE, technology that will enable consumers to shop online and stream videos faster and communicate better.

After the Czech Republic’s auction failure in March and a proposal of new rules for a rerun, mobile providers cut tariffs that, according to Finnish consultancy Rewheel, had been the second highest in the European Union.

CTU head Jaromir Novak has repeatedly said revenue is not the main goal of the auction. The regulator wants to allow a new operator to the market to boost competition and improve services for clients, he said. All three existing operators contested the tender conditions in courts and at the European Commission.

Telefonica’s current management, which will remain in charge before the takeover is closed and approved by watchdogs in a few months, has enough expertise to buy what’s needed in the auction, PPF’s investment director Martin Stefunko told Hospodarske Noviny in an interview on Nov. 8.

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