European telecoms. Spanish step

France Telecom enters Spain's mobile-telecoms market

FRANCE TELECOM caused a stir in European telecom circles on July 27th when it bought an 80% stake in Amena, Spain's third-largest mobile-phone operator. At a recent presentation of his strategy for the next three years Didier Lombard, boss of the hugely indebted French telecoms group, seemed to rule out big acquisitions this year. And France Telecom had been a late, final bidder in the auction for Amena, which had started in April.

Auna, the parent of Amena, had until recently been up for sale in its entirety. Several consortia, including private-equity firms, had been interested in acquiring the group, which also provides cable-TV and internet services. But France Telecom wanted only Amena - and when Auna belatedly decided to sell it separately, it tabled a bid that valued the firm at €10.6 billion ($12.7 billion) - more than ten times its operating profit last year - exceeding the second-highest bid by around €600m.

Is France Telecom paying too much? It is still suffering from squandering a fortune on buying Orange, another mobile-phone company, in 2000. That deal cost France Telecom an absurd €40 billion. Yet this time is different, it claims. It is justified in paying more than its various rivals for Amena because it will benefit from a €1.7 billion tax credit for goodwill amortisation that will only be granted to a Spanish purchaser (it is using its Spanish subsidiary to make the acquisition). It also expects to save €1.1 billion by exploiting synergies.

Adding Amena to Uni2, its fixed-line operator in Spain, and Wanadoo, its internet service, will allow France Telecom to offer the same all-inclusive package as it does in France, Britain, Poland, the Netherlands and Belgium. The deal has a strong strategic rationale, say analysts at Exane BNP Paribas, a brokerage.

Currently, three big companies - Telefonica, Britain's Vodafone and Amena - dominate the Spanish mobile-phone market, which is now growing strongly. However, France Telecom concedes that a price war is possible - especially if “virtual” mobile-network operators (who buy access to operators' networks and resell mobile-phone service under their own brands) enter the Spanish market, as they have in other countries. So far they have not done so, not least because the big network operators have been uncooperative. But several would-be virtual operators are lobbying the regulator to force the networks to give them a better deal.

The purchase of Amena may prove to be a crucial step in the consolidation of European telecoms. So far this year KPN and Telfort have merged in the Netherlands, Ireland's Eircom has bought Meteor, a mobile operator, Wind, an Italian mobile operator, has been acquired by an Egyptian consortium with ties to Orascom and, last year, Denmark's TDC bought Sweden's Song. “France Telecom's takeover of Amena could herald the return of large strategic deals in European telecoms,” says Paulo Pereira, head of European mergers and acquisitions at Morgan Stanley, an investment bank.

For France Telecom, this may be the last big deal in Europe. It now wants to focus on countries where it can offer its integrated model, which rules out Germany, Italy and Austria. And Mr Didier promises to tread carefully outside Europe, as he thinks another telecoms bubble is forming. For instance, in June, Spain's Telefonica offered far more than any rival bidder for Cesky Telecom, a Czech telecoms operator. Of course, so too did France Telecom for Amena - but the French insist that, in their case, this was due to good business logic, not irrational exuberance.