OSLO (Reuters) - Norwegian telecoms company Telenor and Sweden’s TeliaSonera have agreed to combine their Danish mobile businesses to boost margins in their toughest market.
The plan to put their Danish operations into a 50-50 joint venture, which aims to save 800 million Danish crowns ($133 million) a year by 2019, lifted the share price of both companies and their main rival on investor hopes of an end to cut-throat price competition.
The combined business would be broadly on a par with Denmark’s former national telecoms operator TDC and could raise competition concerns because the new top two players would each hold 40 percent of the market. It would also leave Hi3G, marketed under the name 3 and majority owned by Hutchison Whampoa, a distant third.
But the move is not without precedent. The European Union has already cleared deals that cut the number of players to three from four in Austria, Germany and Ireland, requiring only minor concessions.
“There’s a huge need for consolidation in Europe, and we can’t allow ourselves to fall behind the United States and China,” Kjell-Morten Johnsen, head of Telenor’s European operations, told Reuters.
Shares in Telenor and TeliaSonera, which had tried to merge more than a decade ago, both rose by about 2 percent while TDC gained 5 percent, with analysts citing expectations that competition would focus less on the low prices that have depressed margins.
“The main beneficiary of the Telia/Telenor merger announcement is clearly TDC,” Nordea said in a note to clients.
The deal, which will require European Commission approval, is expected to result in about 800 million Danish crowns in integration expenses between 2015 and 2017, Telenor added.
“We have no expectations of this aggravating competition; quite the contrary. This will create broader competition when it comes to quality and innovation instead of the unilateral focus on pricing,” TDC Chief Executive Carsten Dilling told Reuters.
Approval is not a foregone conclusion. TeliaSonera hit a regulatory hurdle this week when a preliminary ruling by Norwegian regulators blocked its acquisition of Tele2’s local unit on concerns it would lead to higher prices.
“It’s interesting to draw parallels,” Arctic Securities analyst Per Gunnar Nordahl said, “but they are completely different markets. The profitability is at opposite end of the scale in terms of Norway being very good and Denmark very bad.”
Most analysts predicted that the deal would eventually be approved, with JP Morgan saying the solution could be to allow mobile virtual network operators enter the Danish market.
Additional reporting by Olof Swahnberg in Stockholm, Annabella Nielsen in Copenhagen and Joachim Dagenborg in Oslo; Editing by Keith Weir and David Goodman