Greece’s telecoms market is moving closer to the consolidation that local analysts say the sector dearly needs, and triple-play operator Forthnet is the prime asset up for grabs. However, the health of Forthnet – which offers broadband, fixed-line…
Greece’s telecoms market is moving closer to the consolidation that local analysts say the sector dearly needs, and triple-play operator Forthnet is the prime asset up for grabs.
However, the health of Forthnet – which offers broadband, fixed-line telephony and pay-TV via satellite – and the dynamics of the market mean that any deal for the operator is far from simple.
Forthnet is the number one alternative operator in the fixed-line market, behind incumbent OTE, and has around 630,000 subscribers, yet its revenues are declining and its net debt to EBITDA ratio sits at around 5x.
The operator is 44%-owned by Emirates International Telecommunication (EIT), a unit of Dubai Holding which has invested a significant amount into the operator. Meanwhile, Vodafone Greece and Wind Hellas, Greece’s second and third largest mobile players, own 6.5% and 33% respectively. The two telcos also have a binding agreement, which gives Vodafone the option to boost its Forthnet stake to 19.75% in a year’s time and would lead to Wind’s stake falling to 19.75%.
The most valuable part of Forthnet’s business is its DTH business Nova, which has around 480,000 customers according to Eurobank Equities. Nova offers premium content and has exclusive rights to broadcast Champions League and the Greek Super League championship.
Given the nature of Forthnet’s ownership, Vodafone and/or Wind would appear to be natural acquirers of the triple-play operator to be able to bundle quad-play services like market leader OTE.
However, it was OTE that made the first move for the telco’s assets. On 1 July, it submitted a non-binding offer of between €250m (US$323m) and €300m (US$387m) for Nova, saying it saw significant growth potential for Greek pay-TV services. This deal would leave Forthnet with only its loss-making fixed-line business.
Later in July, Vodafone and Wind responded with an offer of their own. The non-binding joint bid would be for between €1.70 and €1.90 (US$2.19 and US$2.45) per share for all of Forthnet’s outstanding stock. Forthnet has a market capitalisation on the Athens bourse of around €155m (US$200m), valuing the 60.5% of shares not owned by Vodafone and Wind at €94m (US$121m).
Deal catalyst
Vodafone followed up the joint bid by striking a deal to take over Hellas Online. The British telco already owned 18.5% of the local broadband and fixed-line operator, and the acquisition gives it 91.2% of the business.
The two reportedly signed an agreement in 2009 which says that Vodafone cannot proceed with any action in the Greek fixed market without the consent of Hellas Online. Analysts have suggested to TelecomFinance that Vodafone’s move for Hellas Online at this point in time suggests rumours of the pact were correct.
Constantinos Zouzoulas, MD of research at Cypriot boutique Axia Ventures Group, explained that Vodafone’s Hellas Online deal would act as a catalyst for the market:
“Vodafone couldn’t really do anything else in the Greek telecoms market unless they had the okay from Hellas Online.
“The other market participants knew that the Hellas Online would trigger consolidation in the Greek telecoms sector and this is starting to happen now – it’s a sector that needs consolidation and this has been known for some time.”
Attentions have now turned to Forthnet’s largest shareholder, EIT, and whether it reaches an agreement with OTE or Vodafone and Wind. The Dubai firm is keen to recoup as much of its investment as possible, but it is coming under pressure from Greek banks which want their money back from indebted Forthnet.
Antonis Diapoulis, an analyst at Alpha Finance, does not expect EIT to make a decision imminently.
“By the end of the year the whole situation will be clear – clear as far as what the intentions of the main shareholders of Forthnet are.
“What will not be clear is the intention of the regulator, and that is a big, big risk for OTE, and for Vodafone and Wind.”
Regulatory questions
Stamatios Draziotis, a research analyst at Eurobank Equities, said that whatever happens with Forthnet will be good for OTE. If the Greek incumbent can acquire Nova then it will have a good asset and be in a strong market position. If OTE loses out to Vodafone and Wind then prices in fixed-line are likely to recover and potential regulatory amendments might be positive for OTE, Draziotis said.
Zouzoulas said OTE does not believe it would have too much of a problem obtaining regulatory approval to merge with Nova. OTE would argue that the target had a monopoly for 20 years until 2010 – when OTE launched its own rival service – and that pay-TV has competition from free-to-air broadcasters.
Also in May, the then-governor of Greece’s Central Bank, George Provopoulos, was quoted as saying that the country needed consolidation across the economy to become more efficient and competitive.
An even more significant merger could happen between Vodafone and Wind. The companies held talks about a tie-up in 2012 but Vodafone pulled out of the process.
However, in spite of there being no indications of talks at present, analysts believe a deal may still happen in the future as the companies have become closer since 2012.
In addition to their joint interest in Forthnet, Vodafone and Wind have pooled their 2G and 3G network infrastructure in a joint venture named Victus Networks. Vodafone operates its 4G services separately – technology which Wind does not offer yet. Were the two operators to win the bidding for Forthnet, that would bring them another step closer to each other.
