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Vodafone mulls Cesky bid

16 Aug 2004

Vodafone Group is considering entering a bid for the government’s 51% stake in incumbent Czech telco Cesky Telekom, having contracted US bank Citigroup – instead of its usual advisors Goldman Sachs and UBS – to assess its options regarding the purchase. The operator has not revealed any details on the sort of deal that it would be tabling, but analysts have suggested that it would be complicated, as Vodafone is unlikely to be interested in Cesky’s fixed line operations given its strategy to remain purely a mobile operator; Deutsche Telekom is a potential bidder for these.

Cesky’s privatisation has been a long-running saga. In August 2002 it was announced that the sale was to go ahead, with the state’s 51.1% stake being sold to the consortium of Deutsche Bank and Denmark’s TDC for USD1.83 billion. Three months later talks collapsed after both sides disagreed over the final price to be paid for the shares. In February 2003 the Finance Ministry recommended that the cabinet draft a plan for privatising the telco by July 2004, with the aim of selling it off by 2005.

Cesky Telekom is one of the most profitable telcos in Europe and to date has experienced no serious threat to its position, still controlling the vast majority of the country’s fixed line connections. It has experienced a decline in its fixed line services, however; by the end of March 2004 it had 3.52 million lines in service, down from 3.58 million three months earlier and 3.66 million at the end of 2002. The company lost more than half a million PSTN lines between December 2001 and March 2004, adding just over 200,000 ISDN channels in the same period. It says the introduction of carrier pre-selection in 2003 has begun to eat into its revenues. Fixed line revenues stood at CZK36.5 billion in 2003, down from CZK38.99 billion in 2002 and CZK41.88 billion the year before. Wireline services are also contributing less and less to the company’s overall income, representing 60.7% of the total in 2003 compared to 72.6% in 2002 and 73.1% in 2001.

The losses have been offset by increasing popularity of Cesky’s mobile arm Eurotel Prague. Since launching commercial analogue services in August 1991 Eurotel has remained the largest operator in the Czech mobile market, although its lead is being slowly whittled away by T-Mobile – and more recently by Cesky Mobile. Eurotel signed up 324,000 subscribers in 2003 to end the year with 4,215,000 users, and three months later its customer base had risen to 4.28 million. Its market share stood at 44% at the same date, with overall mobile penetration in the country standing at 96.8%.

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