CK Hutchison reportedly looks to Telenor for Sweden and Denmark merger

CK Hutchison is reportedly holding talks with Telenor with the aim of brokering a merger deal in Sweden and Denmark.

The telco group, which operates Three-branded services in both countries, is proving instrumental in a new wave of merger and acquisition activity in the European sector. Its discussions with Vodafone over a UK tie-up are thought to be nearing completion, and now the firm is apparently turning its attention further north.

So says the Financial Times, which late last week cited unnamed sources as saying CK Hutchison has held talks with Telenor about a business combination in Sweden and Denmark. They added that the telco has also had discussions with other possible partners for its Nordic businesses, but did not name them.

They also included the usual caveat about discussions being at an early stage and there being no guarantee a deal will emerge.

Whether the talks prove fruitful or not, this latest rumour serves as a further indication as to which way the wind is blowing in European telecoms. It’s pretty clear that operators across the continent are struggling to make the numbers stack up in four-player markets.

Indeed, as Darren Purkis, chief financial officer for Three UK and Ireland, told telecoms.comlast week, the market in its current form is “unsustainable.” Network build requires high levels of investment, but the number of players competing for customers means a lack of scale for those doing the spending.

The announcement of a merger deal between the UK arms of Three and Vodafone could come any day now – although it feels like we have been saying that for some time – and it would hardly come as a surprise if either company were looking to scale up elsewhere in Europe.

Three is the smallest of Sweden’s four mobile network operators, while Telenor comes in third; the pair had a combined market share of just over percent at end-2021, according to the most recent set of data from the Swedish Post and Telecom Authority (PTS). As such, a merger would put them just ahead of market leader Telia and some way in front of second-placed Tele2.

Telenor is also the third-ranked operator in Sweden’s fixed broadband market, but with Three not featuring, any regulatory investigations would focus on competition in the mobile space.

It is a similar story in Denmark. Telenor is the second-largest mobile provider there, but a merger with fourth-placed Three would put it at around the same market share as incumbent TDC.

With the two countries housing populations of just over 10 million and around 6 million respectively, having four mobile operators is starting to look like something of a luxury, and one the telcos themselves are struggling to afford. You could argue that small countries like these have more chance of winning EU approval for a reduction in the number of players, but to date Brussels has been fairly set on four-player markets.

That said, all eyes are now on Spain, where Orange and MasMovil hope to merge their operations into a 50:50 joint venture. The pair announced the deal last summer, but look set to face a lengthy review at the EU.

Earlier this month Reuters’ sources reported that when the European Commission’s preliminary review of the deal draws to a close in April it will open an in-depth investigation. Experience suggests that will take some time.

The newswire suggested that the deal could get the green light, subject to MasMovil agreeing to certain competition remedies. Either way, the industry is viewing this probe as an indicator of how far the EU is prepared to budge when it comes to the number of facilities-based players in a market.

With Internal Market Commissioner Thierry Breton recently indicating that the bloc could use some inter-market consolidation, and once again addressing the hefty investment burden faced by operators, there is reason to believe that four might no longer be the magic number for Brussels.

If that turns out to be the case, it seems CK Hutchison will likely be in vanguard of the resulting M&A charge.

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