Telenor's Nordic M&A plans hinge on EU's Spain decision

M&A is still an option for Telenor in its Nordic operations, but it is unlikely to make any move until the European Commission has decided what to do about Orange and MasMovil’s planned tie-up in Spain.

That was one of the key messages from the Norwegian operator’s third quarter results presentation this week. The quarter showed a solid performance from its four Nordic markets, but the telco is keeping its options open for the future of at least some of those businesses.

“Everyone is waiting now for the EU’s competition decision on the proposed merger in Spain, and so are we,” said Telenor Group CEO Sigve Brekke on the operator’s results call with analysts, in response to a direct question about the likelihood of in-market consolidation in the Nordics.

The crux of the matter is whether the European Commission will approve in-market mergers without hefty remedies, Brekke said. In the meantime, when it comes to the Nordic markets, “we are exploring value-creative deals,” he said…and declined to comment further.

There has been talk of consolidation in the Nordic mobile markets for many months. What appeared to be the strongest rumour to date surfaced in March, when the Financial Times claimed Telenor was in talks with CK Hutchison about the possibility of merging its operations in Sweden and Denmark with the Three brands in those markets. The paper’s sources also said that CK Hutchison had held talks with other Nordic partners.

There have been no developments since then however, publicly at least. Doubtless there have been plenty of discussions behind the scenes though. And Telenor is unlikely to be the only player waiting for that European Commission ruling.

Initially the Commission was due to make a decision in September, but it put its probe into the deal on hold in July and now we are without an end date. Earlier this week Reuters reported that Orange is still holding talks with the Commission about possible remedies to address its competition concerns, while its sources claimed that Orange and MasMovil have selected Digi, Spain’s ambitious fifth fixed and mobile operator, to acquire any assets that would have to be divested via those remedies.

Digi would be the obvious choice for such a move, so there’s not much to discuss on that report. That said, it suggests that Brekke may be unlucky if he hopes to broker a Nordic merger without major structural competition remedies.

While a tie-up in one of Telenor’s three Nordic markets outside of Norway would certainly help it build some scale and boost its ability to invest, the operations in question are hardly in dire straits.

Telenor Nordics turned in 4% on-year service revenue growth and an 8% hike EBITDA in Q3, “supported by strong operational performance and lower energy prices,” the telco said. The Nordic operations helped drive 3.6% organic service revenue growth at group level. There remain challenges in those markets – Sweden is facing the task of ripping out Chinese equipment next year, for example – but overall, they are in good shape.

Similarly, Telenor is positive on its home market. It is starting to feel the benefits from a cost perspective of decommissioning its copper network and it is optimistic about the fibre-based future. Regulatory changes in Norway, due to come into force next year or possibly early in 2025, mean that Telenor will be able to access rivals’ infrastructure in much of the country. It is keen to do so, and may even be able to offer fibre Internet services on other players’ networks sooner, some of its rivals having indicated their willingness to open up their infrastructure.

“This is a big opportunity for us,” Brekke said.

Driving the four Nordic markets is the remit of Jørgen C. Arentz Rostrup, who took on the role of Head of Telenor Nordics a few weeks ago. Given that his previous position as Head of Telenor Asia saw him oversea two major mergers during his three-and-a-half-year tenure – the coming together of Telenor’s DTAC with True Corp in Thailand, and the creation of CelcomDigi in Malaysia – his arrival only reinforced rumours of M&A in the Nordics.

But he also left behind a market in a state of flux. Telenor has been mulling its options for its troubled Pakistan business for the past year but has apparently not yet set a firm course, although naturally the industry is expecting a sale. “We are yet to come up with a solution in Pakistan,” Brekke admitted on the results call.

He did not have much to add to that, but the newswires extracted a little more information out of him. The CEO told Bloomberg that the company is undertaking a strategic review and is in talks with various parties. “Before the end of this year, we will have made the decision,” he said.

We could well have an announcement on Telenor Pakistan before any further news on Nordic M&A.

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