Tele Danmark Gets Ready To 'Czech' In - Company Business and Marketing

By Mark Holmes, mholmes@the-phillips-group.com

LONDON - Tele Danmark could be on the verge of securing a majority stake in Czech telecom and broadcasting player, Ceske Radiokomunikace.

At least this is the scenario thought most likely by the industry since the Czech government announced it was going ahead with the privatization of its telecom assets, despite the depressed state of the telecom markets. Because of these worsening economic conditions, the government probably will get less than $500 million for its 51 percent stake in Ceske Radiokomunikace, roughly half the price officials had hoped for.

If Tele Danmark does indeed bid on the carrier, it would gain the No. 2 Czech wireline player, and a minority stake in Radiomobil, the telco's cellular operator, as well as control of the broadcasting business and of Internet service provider Contactel, where it already holds a 50 percent stake.

Tele Danmark already holds a 20.8 percent stake in Ceske Radiokomunikace and is a firm favorite to assume majority control.

Stefan Herz, a telecom equity analyst at Dresdner Kleinwort Wasserstein, said Tele Danmark is unlikely to sell-off the stake in Radiomobil.

"There are suggestions that the Radiomobil stake will be sold to Deutsche Telekom. The problem with that is that it doesn't leave an awful lot of other businesses that are interesting. [Ceske Radiokomunikace's ISP unit, Contactel] is a fledgling new entrant that is going to require vast capital expenditure going forward. I think the costs of raising finance for new entrants in Eastern Europe is just going to shoot through the roof. I think they are well positioned to become the No. 2 player in the market, but that in itself doesn't mean there is an attractive, or even sustainable, business case there. I always point to the disastrous performance of Netia when people get too excited about Contactel. So, would you really want to split it off and have a standalone business and fully expose it?"

But there could be further divestitures. Tele Danmark could decide, for instance, to sell the broadcasting part of the business to telecom radio tower owner Crown Castle International [TWRS], while maintaining control over the wireline and Internet operations.

The Bottom Line

But don't jump to any conclusions just yet - there still are some intriguing possibilities for the Czech operator. For one thing, Deutsche Telekom and Ceske Radiokomunikace jointly own Radiomobil through a consortium called C-Mobil. DT has a 60.8 percent stake in Radiomobil, and it is possible that, ultimately, Deutsche Telekom may divest its stake in Radiomobil to pursue a majority share in Poland's incumbent operator Cesky Telecom. Or, Tele Danmark could sell its stake in Radiomobil to DT after the sale, since a stake in Radiomobil is little more than a financial asset.

And the fact that DT has a majority stake in Radiomobil would make any future deal involving Cesky Telecom a complicated affair.

"I would say DT has its problems right now with the balance sheet and cash flow," Ziggy Lapinski, a telecom equity analyst at Deutsche Bank, told Wireless Today, a sister publication to Communications Today. "Definitely, if the Cesky Telecom privatization would move to the back end of this year or next year, they could possibly be interested. I doubt DT would do something directly after the Ceske Radiokomunikace sale. Would DT want to buy the mobile part of Radiomobil from Tele Danmark? They have control, so they don't need the additional asset. The point is, this year in the sector, everything is about cash. There are very few examples of telcos that are not short of cash. I would say for DT, they might consider to buy Cesky Telecom at some point in the future, but why should they do it right now?"

A second industry analyst, who requested anonymity, also asserts this is an unlikely outcome. "I think DT would think twice before putting down money for something like Cesky Telecom. All they want is the mobile assets and they already have control of the mobile assets. Why would they need to pay more? I don't think, strategically, this makes a lot of sense."

COPYRIGHT 2001 Phillips Publishing International, Inc.
COPYRIGHT 2001 Gale Group