Telefonica has rejected Sonera’s offer to sell some of its stake in Germany’s Group 3G.
Spanish mobile operator Telefonica Moviles (a subsidiary of former monopoly telco Telefonica) has rejected Finnish telco Sonera’s offer to sell some or all of its stake in German mobile startup Group 3G. Currently, Telefonica owns 57.2% of the venture, while Sonera owns 42.8%. The Finnish company has already stated it wants to cut its stake to 20%.
Sonera certainly bit off more than it could chew in last year’s 3G frenzy. As part of a debt reduction strategy, the Finnish company has recently put its Spanish 3G joint venture on hold, and is rumored to be selling its Baltic holdings to Sweden’s Telia. Earlier this year, it handed back its Norwegian 3G license to the government.
Meanwhile, Dutch operator KPN has replaced the CEO of its mobile division. Many believe Diederik Karsten’s departure is due to the failure of KPN’s mobile expansion strategy. The company has been saddled with E22 billion in debt, and has had to consider emergency fundraising measures, including a merger with Belgium’s Belgacom.
The key factor linking KPN and Sonera is that they tried to expand in 3G without a strong enough asset and revenue base from their existing operations. When equity and debt markets turned against telecoms, they were left without access to the enormous funds needed to realize their ambitious pan-European expansion plans.
Telefonica, along with France Telecom and Deutsche Telekom, is in a different position. All have access to huge revenues from their fixed line businesses, simply because Spain, France, and Germany are all large countries. While the latter two firms are among the world’s most indebted companies, they can still easily afford the interest payments.
Although 3G will not be the bonanza people once expected, it looks likely to be a greater financial success than current market sentiment implies. It may take several years, but the leading operators should eventually see serious revenues. In the meantime, while valuations are depressed, maybe Telefonica should rethink its rejection of Sonera’s offer.
