Vodafone is reported to be the favored bidder for Australian telco Cable & Wireless Optus.
The Sydney Morning Herald today reported that Vodafone has offered to bid $9.5 billion for Cable & Wireless Optus, which runs Australia’s second largest mobile network. Cable & Wireless, which owns 53% of Optus, is moving away from consumer telephony to concentrate on providing Internet services. It has already sold its UK consumer operations and its stake in Hong Kong Telecom to pay for acquisitions of ISPs and other Internet services firms.
The move fits well with Vodafone’s strategy of using its comparatively high share price, which has fallen much less than most rival mobile operators, to acquire actual or potential mobile market leaders. Whilst Vodafone is already Australia’s third-largest mobile network, its market share is just 18% compared with Optus’ 33% and Telstra’s 47%. Buying Optus would allow Vodafone to dominate.
However, there will be major problems in getting regulatory approval. The Australian authorities will be reluctant to allow Vodafone to take 51% of the market. Whilst Optus and Vodafone are currently jointly working on ways to get the deal cleared, some reduction in market share is likely to be required – making the deal less attractive to Vodafone.
A slightly puzzling aspect of the deal is that Optus also has corporate data and consumer businesses. According to the report, Vodafone is interested in buying the whole company. Vodafone is purely a mobile operator, with little experience in fixed-line telephony, so this would be a change of strategy. But the move may still make sense. Vodafone may feel that because of its high share price, it can pick up these assets cheaply and then sell them off in the future when telecom stocks recover. Alternatively, it may be interested in leveraging Optus’ fixed line network and customer base to benefit the mobile operation – particularly important in a country as large as Australia, where most mobile-to-mobile calls will need to be routed via fixed networks.
There are many unanswered questions surrounding Vodafone and Optus and the bid is a long way from being sealed. However, it seems that as long as the companies can satisfy the regulators, Optus will follow Eirecell as another successful notch in the mobile giant’s belt.
