IHS Global Insight Perspective | |
Significance | Despite a continuing fair performance at Sunrise, TDC clearly does not see any future in Switzerland, preferring to concentrate on its home Nordic markets. |
Implications | TDC has repeatedly expressed frustration at the continued dominance of Swisscom and has now had enough of the stagnant Swiss market. |
Outlook | Switzerland remains the only Western European country with a completely dominant incumbent operator—the result of an abject failure of regulation. |
TDC has announced that it has sold its Swiss mobile unit Sunrise to private-equity firm CVC Capital Partners (CVC) for 3.3 billion Swiss francs (US$3.25 billion), marking the Danish incumbent's exit from the Swiss market. TDC said it expects to post a 650 million Danish kroner (US$114 million) gain after tax from the sale, with the transaction expected to close in the fourth quarter subject to regulatory clearance.
CVC is paying roughly six times Sunrise's recent annual earnings before interest, tax, depreciation, and amortisation (EBITDA) for the operator, on a cash and debt-free basis. The investment group is funding the acquisition with approximately one-third of its own cash and two-thirds of borrowed funds.
The sale has led to TDC trimming its full-year financial forecasts. It now says it expects 2010 revenue to stay flat in line with 2009 and EBITDA growth of 2% year-on-year (y/y), compared to previous estimates of full-year revenue growth of 1%—3% y/y and EBITDA growth of 3%-4% y/y.
Outlook and Implications
- TDC Loses Patience with Switzerland: Sunrise is Switzerland's second-biggest mobile operator after Swisscom, with a market share of some 20%. However, the operator has failed to mount any significant challenge to the dominant incumbent, which still commands 60% of the country's mobile subscribers.
Last year, TDC attempted to merge Sunrise with France Telecom's Orange Switzerland, but this was vetoed by the Swiss Competition Commission (COMCO) on the grounds that this would leave the country with a duopoly (see Switzerland: 4 June 2010: France Telecom and TDC Swiss Merger Dead in the Water As Appeal Is Withdrawn). However, both TDC and France Telecom claim the planned merger was an attempt to allow both operators to compete better with the dominance of Swisscom. TDC recently pledged to invest around 1 billion Swiss francs in its Swiss network over the next five years (see Switzerland: 18 June 2010: Sunrise Pledges US$900-Mil Network Investment over Next Five Years). However, it is unlikely this will be honoured, with CVC releasing no investment plans of its own.
Meanwhile, Orange has pledged to invest a modest US$600 million in the country (see Switzerland: 23 June 2010: Orange Switzerland Announces US$600-Mil. Network Investment Plans). The operator is likely to use the confusion at Sunrise to push for second place in the Swiss mobile market. TDC has repeatedly expressed frustration at the continued dominance of Swisscom and the failure of the country's regulator to encourage competition, and it is now apparent that the Danish incumbent has had enough of the stagnant Swiss market.
- TDC Retreats to Nordic Markets: TDC claims that the divestment of Sunrise is a natural next step in its strategy to focus its attentions on its home Nordic markets. The Danish incumbent recently revealed that its first-half EBITDA rose 6.4% y/y, boosted by healthy subscriber growth and beneficial currency movements. However, the group has long been boosted by Sunrise, which saw EBITDA jump 14.9% in the first half, mainly due to increased activity in the mobile business, as well as some cost reductions (see Denmark: 13 August 2010: TDC's H1 EBITDA Up 6.4% on Encouraging Signs of Subscriber Growth).
Despite a continuing fair performance at Sunrise, TDC clearly does not see any future in Switzerland, preferring to concentrate on its home Nordic markets. TDC, which itself is controlled by private-equity investment firms, is widely expected to announce a big stock offering or flotation in the near future, but the failure of the Sunrise/Orange Switzerland merger and the continuing global economic uncertainty has delayed these plans (see Denmark: 29 June 2010: TDC Public Offering Back on Track to Be Completed Later this Year—Report).
Meanwhile, the incumbent faces the possibility of an increase in competition at home; the Danish regulator has recently announced plans to auction two new licences this year, including one reserved for a new entrant (see Denmark: 15 September 2010: Danish Regulator Confirms 900-MHz and 1800-MHz Spectrum Auction for End-October).
- Swisscom Dominance Continues Unabated: Swisscom remains by far the dominant operator in the mobile sector. However, it recently announced that its first half EBITDA fell 2.4% year-on-year (y/y) as it faces increasing price pressures and competition at home (see Switzerland: 4 August 2010: Swisscom's H1 EBITDA Down 2.4%, Confirms Outlook). However, the incumbent has seen declines in traditional fixed-line services boosted by strong demand for triple-play services, as well as key growth in mobile data traffic.
Swisscom has recently cut its mobile termination rates (MTRs) to bring them in line with those in the European Union (EU). It reached a rare agreement with the alternative operators following complaints from the fixed players to the Swiss regulator regarding the fees (see Switzerland: 9 September 2010: Swisscom Cuts Mobile Termination Rates to EU Level). However, the incumbent's MTRs are still artificially high, and the move to cut the rates was largely voluntary. Switzerland remains the only Western European country with a completely dominant incumbent operator, the result of an abject failure of regulation.