TDC Chief Joins Phone Executives Calling for Nordic MergersAdam Ewing
TDC A/S, Denmark’s biggest wireless carrier, joined Nordic rivals in calling for businesses to combine as falling prices in the region’s saturated market hurt earnings and hinder operators’ ability to invest.
“The Nordic market is mature and ready for consolidation, and we are open minded on the TDC side to assess relevant opportunities,” Chief Executive Officer Carsten Dilling said in an interview last week at the carrier’s headquarters in Copenhagen. “I definitely think we’ll see consolidation.”
TDC is a leader in Denmark’s wireless market, ahead of Sweden’s TeliaSonera AB, Norway’s Telenor ASA and 3 Scandinavia. It’s focused on profitability by bundling mobile, TV and Internet service, rather than trying to compete on price in the country of 5.6 million people, Dilling said.
The company decided a year ago to step back from the fight for customers to concentrate on profit, he said. Earnings before interest, taxes, depreciation and amortization have declined less in each quarter this year than the 5 percent drop for the full-year 2012. Last month, TDC left its 2013 profitability target unchanged even as it reduced its sales forecast, citing cost reductions.
TDC shares rose 0.3 percent to 49.39 kroner at 9:22 a.m. in Copenhagen. They have gained 23 percent this year, giving the company a market value of 40 billion kroner ($7.3 billion). Telenor and TeliaSonera, which have been more aggressive in expanding abroad than TDC, each have a market value topping $35 billion.
The price operators charge for mobile data in Denmark has fallen as the four national carriers seek new customers, making it more difficult for them to make the needed investments in networks, said Fredrik Thoresen, an analyst at DNB ASA in Oslo.
“The shift from voice and messaging to data has picked up in pace and is likely to yield more pressure on network infrastructure spending, and put greater stress on cash flow margins down the road,” Thoresen said. “The Danish market is ripe for consolidation.”
TDC has about 40 percent of the Danish mobile market, while Telenor has 23 percent, TeliaSonera 17 percent, and 3, which is owned by Li Ka-shing’s Hutchison Whampoa Ltd. and the Wallenberg family’s Investor AB, has 11 percent, Thoresen said.
Dilling said he expects rivals’ subsidies for new smartphones to increase through the holiday shopping season, while TDC focuses on raising prices and bundling services as part of its strategy for more profitable growth.
“We decided not to participate in the price war, by having a bit more ice in the stomach and adding more value-added services,” Dilling said.
Even as companies operating in Denmark’s “heated competitive landscape” would benefit from tie-ups, TDC probably can’t make large purchases in the country as regulators wouldn’t allow it because of its dominant position, Dilling said.
In Europe, consolidation within countries makes most sense and how the European Union’s Competition Commissioner Joaquin Almunia rules on Telefonica SA’s purchase of Royal KPN NV’s E-Plus unit in Germany is critical, Dilling said.
Telenor CEO Jon Fredrik Baksaas said on Oct. 31 that the Swedish and Danish markets would benefit from mergers, with Denmark being the country better suited for consolidation. Per-Arne Blomquist, who left his post as TeliaSonera’s finance chief last week, said Nov. 21 that consolidation is “essential” for Europe. Deutsche Telekom AG CEO Rene Obermann said last week that Europe’s phone companies must seize the moment to consolidate if they want to stand up to international competition.
Hutchison, based in Hong Kong, wants to buy more telecommunications assets in the Nordic region, said a person familiar with the situation last month.
The number of carriers dropping to three from four would help lower costs for the remaining operators, said Mikko Ervasti, an analyst at Evli Bank Plc in Helsinki.
“Being an operator is a capital-intensive business with all the network investments and high marketing costs,” he said.