TeliaSonera seals rescue deal for 3G start-up Xfera; plans year-end launch

15 Jun 2006

Scandinavian telco TeliaSonera says it has struck a deal to increase its stake in Spanish 3G start-up Xfera Móviles from 16.55% to between 76.5% and 80%, with a view to launching commercial services by the end of the year. TeliaSonera has been scrambling to find a rescue package to save the Spanish company after the government threatened to revoke Xfera’s UMTS licence. TeliaSonera is paying SEK657 million (EUR71 million) for the stake, but this could rise depending on Xfera’s future performance. Spanish construction company Actividades de Construcción y Servicios (ACS) will reduce its holding in Xfera from around 37% to 20%, whilst all but one of the company’s remaining minority shareholders will exit the venture. Fomento de Construcciones y Contratas is selling its 7.75% stake to TeliaSonera, but is expected to exercise an option to re-acquire 3.4% before the end of this month for EUR4.3 million, equal to the price TeliaSonera paid. Should Fomento de Construcciones y Contratas choose to exercise its option TeliaSonera’s eventual stake in Xfera will be 76.6%.

Xfera Móviles was formed specifically to bid in Spain’s UMTS licence auction of 2000. Originally spearheaded by Nordic group TeliaSonera and Vivendi Universal of France, Xfera won Spain’s fourth 3G concession in March 2000. Since then, however, its history has been littered with failed launch attempts, financial troubles and investor unrest. Vivendi offloaded its 26.3% stake in the consortium to fellow shareholders for a nominal EUR1 in 2003, and in March 2006 Xfera said it would cut its investments and freeze the development of its network entirely, as well as cut back its workforce, to reduce costs whilst it searched for a strategic investor or business partner. Last month it was reported that Spain’s Industry Ministry was drafting a report outlining various ways in which Xfera’s UMTS licence could be revoked, because the state did not believe that the company will be able to comply with its latest deadline to start operations by 30 June 2006.

TeliaSonera hopes that the government will postpone the deadline by six months now that Xfera’s funding and future are secured, but has not yet confirmed whether its new business plan has been approved. It says it will invest EUR1 billion in Xfera over the next five years, the bulk of which will be spent on the rollout of its networks and IP-service platforms, alongside other start-up costs and spectrum fees (including accrued fees dating back to 2002). The Scandinavian group says it has already resurrected an agreement with mobile operator Vodafone Spain to roam on its nationwide network; the deal was first signed in 2001. Local papers claim that TeliaSonera has already approached equipment vendors including Ericsson, Nokia, Siemens and Huawei Technologies as potential suppliers for Xfera’s network.