Vodafone is in talks with Wind Hellas to merge operations in Greece as a move to cut costs and challenge local Duestche Telekom-controlled rival Cosmote for market leadership.
"Discussions are at an early stage and there is no certainty as to whether an agreement will be reached," Vodafone confirmed in a brief e-mail to Bloomberg.
An insider close to the negotiations said that the deal was centred on a merger between Vodafone Greece and Wind Hellas, respectively the second and third largest mobile operators in the country, and not a co-operation or partnership. Vodafone CEO Vittorio Colao is said to be on good terms with Wind Hellas CEO Nasos Zarkalis, a former senior Vodafone executive. Vodafone has dismissed market speculation that it may acquire Wind Hellas for about €1 billion in cash.
Vodafone is pushing for the merger as a way to cut capital and operating expenditures, particularly after it reported a 19 per cent fall in service revenue for the 12 months ending March 2011.
Commenting on the talks, Robin Bienenstock, an analyst at Sanford C. Bernstein in London, said that Vodafone would gain "substantial" cost savings from a merger that would also help Cosmote, a unit of Greek operator OTE. "While the market would become a duopoly, no one operator would possess an overwhelmingly large share," she told Bloomberg.
An enlarged subscriber base would also help a merged company to compete more effectively with Cosmote, which has nearly eight million customers and a market share of 48 per cent. Deutsche Telekom recently gained effective control of Cosmote having increased its shareholding in June to 40 per cent.
Cosmote is itself struggling with poor sales and profits following three years of recession, and is locked in talks with unions to cut wages and other costs.
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