Britain's Vodafone to buy Oskar Mobil in Czech record-breaking deal

The purchase of Oskar Mobil is reported to be the single-largest transaction in the Czech Republic involving a private company. What will it mean for the domestic market?

Vodafone has made good on his Eastern European promise with a $4.4 billion buy that plugs a geographic gap for the British mobile phones giant. Vodafone, which has operations in Hungary and wants to buy out remaining shareholders in its Polish venture, is acquiring Oskar Mobil in the Czech Republic and the 79 percent of the Romanian player MobiFon that it does not already own.

The move will add a further 5.7 million customers to Vodafone's empire; it will certainly shake up the Czech mobile market -- and could well up the bidding on Cesky Telecom, the fixed-line operator slated for privatization, which controls Eurotel, the largest mobile operator on the Czech market.

The entry of Vodafone is widely expected to raise the bar for services, says Patria Finance telecoms analyst Tomas Gatek:

"Well, of course the entry of Vodafone into the Czech market brings a new [level of] competition here because Vodafone is a strong operator with experience on global markets. We believe that the company will want to increase the market share that Oskar Mobil has here, which is about 17 percent. And that might be done via more favorable pricing for customers but also by the introduction of new services, such as data, and [other] value-added services, where Vodafone is quite strong."

Telesystem International Wireless Inc. of Canada, or TIW, is selling its remaining assets to British wireless powerhouse Vodafone Group PLC — the world's largest wireless operator. TIW's Oskar Mobil is the third largest on the Czech market, with an estimated 17 percent share.

Canada's TIW unveiled the agreement to sell off its wireless services in the Czech Republic and Romania on Tuesday, less than a week after first disclosing the talks with Vodafone. The following day, the British company announced it would be expanding global roaming services and data communications to 51 countries and regions as of March 30th.

Tomas Gatek again:

"Also the customers might benefit from, perhaps, better roaming charges because of the global presence of Vodafone and perhaps even better prices for the handsets, as Vodafone might use its strong purchasing power."

In addition to the $3.5 billion in cash Vodafone is paying for Oskar Mobil, it is also taking on over $900 million of debt to buy the Czech and Romanian businesses of Canada's TIW. In the wake of the deal, most telecoms analysts said they were comfortable with the price being paid and that the purchases made strategic sense because they would fill a hole in Vodafone's global mobile network.

The Czech Republic and Romania rank in the top five mobile markets in Central and Eastern Europe. Mobil phone penetration in the Czech Republic stands at 105 percent — higher than in Britain. However, Romania's Mobifon offers greater growth potential, as less than half of Romanians own a mobile and the company, which trades under the Connex name, has a market share of 48 percent.

Repeated calls to Oskar Mobil for comment were unsuccessful, but Vodafone is expected to install its own management in Prague and to drop the Oskar Mobil name. Vodafone's arrival could mean greater competition, as Patria Finance analyst Tomas Gatek notes, in terms of new services and reduced tariffs — especially if Cesky Telecom's buyer isn't a strong operator, such as France Telecom/Orange.

"As far as implications to the privatization of Cesky Telecom are concerned, I would see them as rather limited at the moment, or the direct impact would be rather limited, because speculation that Oskar was for sale has been on the market for some time so the bidders for Cesky Telecom must have taken this into account when making their bids. But on the other hand, obviously a strong company coming on to the markets is going to affect the pressures and operating margins of Eurotel, therefore you can assume — you should revise your evaluations of the company"

"On the other hand, the price paid for Oskar was quite high, so implying the multiples to Cesky Telecom you might be looking for a higher price. It may also stimulate the bidders to more aggressive, especially, let's say, France Telecom in relation to Orange — because Eurotel remains the last opportunity for the company to enter the market — and if Orange want to be competitive on a global scale, then this [Cesky Telecom] could be the opportunity."