Eircom deal “makes little strategic sense”

Swisscom has a considerable presence in Switzerland but is looking to expand abroad Keystone

Telecoms analyst Panagiotis Spiliopoulos from Bank Vontobel tells swissinfo a tie-up between Swisscom and Irish operator Eircom would not make strategic sense.

He also pours water on speculation that Switzerland’s largest telecommunications firm is a serious contender for buying Denmark’s former telecoms monopoly TDC.

Cash-rich Swisscom has repeatedly made it clear that it is looking for acquisitions abroad, but it has been thwarted in recent attempts to buy both alpine neighbour Telekom Austria and Czech-based Cesky Telecom.

swissinfo: Would Eircom be a good fit for Swisscom?

Panagiotis Spiliopoulos: From a strategic viewpoint it doesn’t make much sense, but that’s true for almost all incumbent players in Europe. With Eircom you don’t have any growth initiatives or any of the growth potential that there would have been with Cesky Telecom or Telekom Austria.

For Eircom it’s exactly the same story as for Swisscom: fixed line under pressure, strong competition, the mobile market already highly penetrated. There’s not much there in terms of synergies.

swissinfo: So on the face of it not a very attractive deal. Is Swisscom just doing this because it has money to spend?

P.S.: Yes, from a financial perspective that’s the main reason behind this move. They have always said that if possible they would go for a [more] strategic solution such as Telekom Austria, which has growth options in eastern Europe. Failing that, they said they would at least try and optimise their balance sheet.

swissinfo: What are the chances of the deal coming off?

P.S.: If the high price – rumoured to be €2.50 (SFr3.85) per share – is true, then they are paying a very high price for Eircom, and it’s obvious that nobody else would be interested in an asset of this quality at that price. So I would put the chances at better than 50 per cent that they will make a bid.

swissinfo: You mentioned Swisscom’s failed attempts to buy Cesky Telecom and Telekom Austria. Is Eircom the next best option?

P.S.: I would say it’s the next but one, because they are still looking at TDC… but the price and size of that deal is too high for Swisscom to swallow. Swisscom has an internal priority list, with Telekom Austria on top position, and they have just been going down the list each time a deal fails. And as you go down the list, the attractiveness of the assets gets lower.

swissinfo: Why would TDC be too much to swallow? Is it partly because of possible regulatory problems, given that TDC operates in Switzerland under the Sunrise brand?

P.S.: No, it’s more in terms of pricing. Let’s assume that the rumoured price for the whole of TDC is going to be in excess of $12 billion (SFr15.7 billion). This is too much for Swisscom. They could afford it, but that would really put them in a tight situation in terms of their balance sheet. And remember that given the strong competition in Switzerland from the cable operators and mobile players you wouldn’t want to risk such a situation.

Swisscom has recently had to lower its mobile tariffs and competition is increasing… with even the big supermarket retailers getting in on the pre-paid mobile market.

swissinfo: Swisscom reports nine-month figures on Thursday. Can we expect any surprises?

P.S.: They have clearly flagged the trends, both in mobile and fixed net, so I don’t see any surprising figures, especially not in a positive sense. If there is going to be a surprise, it will be on the negative side. From what I have heard, the impact of the new mobile tariffs has been stronger than expected.

swissinfo-interview: Ramsey Zarifeh

Key facts

Turnover at Eircom in 2004 was almost SFr2.5 billion ($1.9 billion).
The former Irish monopoly player made a loss of SFr160 million.
Eircom has a staff of just over 7,250.
Swisscom’s turnover last year was just over SFr10 billion. It made a net profit of almost SFr1.6 billion.