Market Watch

TeliaSonera Exits Danish Cable Business with Stofa Sale

July 08, 2010

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Multinational telecoms operator TeliaSonera has exited the Danish cable business, having sold its cable subsidiary Stofa for DKr1.1bn($186.8m). Stofa is to be sold on a cash and debt free basis to private equity (PE) firm Ratos, with proceeds from the sale expected to fund TeliaSonera's 4G network expansions across Scandinava and proposed 4G licence acquisitions in the Baltics. Following the deal, TeliaSonera will report a DKr500m ($85m) capital gain in its third quarter results, when the deal is expected to be completed.

At end 2009, Stofa had 218,000 cable TV customers connected to its network via housing and antenna associations, having seen minimal growth save for the period leading up to the analogue switch-off in Denmark in end 2009. TeliaSonera, in which the Swedish and Finnish governments have a 51 per cent stake, has extensive telecoms operations in the Nordic and Baltic regions, as well in certain CEE countries and Nepal.

Stofa's sale has been in the pipeline for a while now, and TeliaSonera is just another telco in a long list of European players who have exited the capex-intensive and regulation-prone cable business, often selling to either PE funds or other media entities. Key competitor YouSee, owned by Danish telecoms incumbent TDC, has also been rumoured to be on lookout for buyers, but economic uncertainty in the euro region and regulatory hurdles faced in Switzerland over the planned merger of its Sunrise subsidiary with Orange forced parent TDC to delay its planned IPO. YouSee, on account of its leading position in the fixed networks and cable broadband markets, is also facing increased regulation in Denmark.

TeliaSonera's exit from the business is not surprising, and can be attributed to several factors. Stofa's operational performance in recent years has been far from spectacular. Stofa has added just over 9,000 subscribers in three years - most of which were added during the run up to the Danish terrestrial ASO at end 2009. In addition, Stofa's customer base is completely made up of antenna and housing associations. Signing up new associations can be difficult given that these associations tend to sign multi-year agreements with cable/service providers. Although Ratos has admitted that subscriber growth at Stofa is likely to be minimal, it sees Stofa as a good buy on account of a large portion of the network already upgraded to Docsis 3.0. The group has indicated that it aims to improve profitability in coming quarters by completing network upgrades and exploiting the network's two-way capability to offer additional add-on services like video-on-demand and telephony.

TeliaSonera's acquisition of LTE/4G licenses in Denmark and Finland, where it will commence network rollouts in 2011 alongside planned expansion of existing 4G networks in Sweden and Norway, and its plans to acquire additional licenses in the Baltic region will all place siginificant cash flow burdens. The group has also made abundantly clear in the past that its core focus is on the mobile and fixed line (telephony and broadband) business, with capex priority also given to such projects. Considering these factors and latest developments, we believe it is possible that the group may look at selling off its other cable assets in the Scandinavian region in the next 1-3 years.

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