E-Plus buy catapults Telefonica to top tiers

Telefonica is set to become Germany’s dominant mobile provider, after agreeing a €5 billion acquisition of Netherlands operator KPN’s local cellco, E-Plus.
The buy out is expected to close in 1H14, and will create a cellular operator with 43 million subscribers when combined with Telefonica’s existing German mobile unit. Combined revenues for the two businesses stand at €8.6 billion, and the deal also propels Telefonica to the position of Europe’s number two operator in terms of total subscribers.
Telefonica will fork out €4.14 billion of the agreed price, with its German subsidiary financing the remainder. Once completed, the Spanish telco will own 65% of the new company, and KPN 17%, with the remainder to be sold in the open market.
The deal will cut the number of mobile operators in Germany to three – Deutsche Telekom, Vodafone, and the combined O2/E-Plus -, however Ovum principal analyst, Emeka Obiodu, says consolidation in the highly competitive market is inevitable
“As the third and fourth players, O2 and E-Plus did not have the scale to adequately compete in a market where ferocious price competition has led to declining revenues and profits for telcos… Without a deal, they would have been operating in a market where Vodafone has just strengthened, and Deutsche Telekom enjoys the advantage of being the mobile market leader and the owner of a high-speed fixed broadband network.”
Obiodu also notes the E-Plus acquisition mimics Telefonica’s strategy in Brazil, the largest market in Latin America, where it bought local operator Vivo in 2010.