Germans stalking One2One

By THIS IS MONEY
Updated:

 

Deutsche Telekom is weighing up an £11 billion bid for UK mobile network One2One.

Sales of mobile phones in the UK are soaring and the German giant is determined to muscle in on the lucrative market. Deutsche is convinced that mobile phones will become cheap enough to challenge the dominance of British Telecom's domestic lines.

Analysts say the move would bring another big telecoms player into the UK and the competition would mean lower prices for both mobile and fixed-line phones.

One2One, owned by Britain's Cable & Wireless and US cable operator Media One, has been put up for sale after the merger of Media One with American competitor Comcast.

C&W made several attempts last year to buy Media One's 50% stake but talks foundered over the price. However, last month C&W announced that both partners were considering selling their One2One stakes. Estimates of One2One's value range between £7 billion and £11 billion.

A leading City source said: 'Deutsche is looking seriously at One2One. It is serious about the UK market. It has already made a link with UK telecoms operator Energis. There would also be no regulatory problems with the One2One deal.'

German newspaper Die Welt reported yesterday that Deutsche, headed by Ron Sommer, was in 'advanced talks' with C&W.

One2One has 2.25 million UK customers, behind Orange's 2.53 million. Orange, controlled by Hong Kong firm Hutchison Whampoa, is growing fast and analysts believe Deutsche would have to invest heavily to catch up with the speed of its network development. Last week One2One announced a big reduction in tariffs, saying this would allow it to compete with charges for standard phone calls.

C&W is happy to sell One2One because its strategy is to concentrate on building a global network providing multinational companies with services such as video-conferencing and voice and data communications.

Heavy investment in UK mobile services would be a distraction from its other projects. C&W is trying to buy IDC of Japan for £328 million and announced last week that it is paying £600 million for Australia's AAPT phone company. C&W is also spending £420 million on installing fibre-optic networks in the US.

C&W chief executive Graham Wallace has also employed top City banks to look into the sale of Cable & Wireless Communications, its UK cable television and phone company. Moving out of its consumer businesses in the UK is part of C&W's strategy to breathe life into its flagging share price.

City analyst Jim Ross at ABN Amro says the shares should be at 1,250p rather than at Friday's closing price of 819p.

Deutsche would probably use One2One as a launch pad to bid for one of five new mobile phone operating licences that the UK government is to auction.

Each licence could cost up to £500 million, and building an infrastructure of masts, switches and transmitters would cost at least £1 billion more.

Deutsche, with a £33 billion turnover, has deep pockets and is set to raise more cash this autumn through an offer of new shares.

C&W said of Deutsche's move: 'It is speculation and we do not comment on speculation.'

Deutsche refused to comment.

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