What's behind FT's interest in TeliaSonera and Telenor?

Telecoms mega-mergers have been out of favour for some years, so France Telecoms (FT) admitted interest in acquiring TeliaSonera or Telenor has attracted considerable interest. The CFO of FT, Gervais Pellissier, justified the interest in either telco as a need for constant evolution in the communications business, and that size was an essential element. The company believes, apparently, that it wants these levels of scale to compete with the likes of Google and Nokia.

However, this talk has seen FT's share price dip sharply as the investment community--already shell-shocked with the credit crunch, struggles to understand how FT can squeeze the synergies out of such a €34 billion merger. "Taking on Google is not a good idea and we are concerned that FT is even thinking along these lines," was a typical comment from industry watchers.

However, TeliaSonera and FT are both big players in the Russian and Eastern European telecoms market and some analysts can see a strategic fit in this area. Yuliy Matevosov, a researcher with Dresdner Kleinwort, said that Russia has long been the blank spot on the map of Europe's biggest telecom brands. "One reason why FT wants to buy out one of two Scandinavian operators is, perhaps, the chance to promptly turn into a noticeable player on the markets of Russia and CIS, where the actual penetration of cellular communication is much less than in Eastern Europe."

Mike Cansfield, an analyst at Ovum, claimed there was compelling logic for competing operators to merge. "However, for incumbents it's a bit more muddled."

Deals between European incumbents have been rare, stated Canfield. "Indeed, the merger of Telia and Sonera is the main example. Telia, the former Swedish monopoly, and Telenor, its Norwegian equivalent, had previously agreed to merge, but the deal fell apart in 1999."

For more on this story:
- read New York Times, BBJ, GoMo News and Light Reading

Related story:
FT says it's shopping, but not ready to buy--yet. France Telecom story

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