European telecoms look east

BRATISLAVA, Slovakia — Having tapped out markets on their home turf, European telecommunications companies are aggressively exploring a new frontier: Eastern Europe.

The signing last week of a $3.58 billion deal between the Czech government and Spain’s Telefonica SA for 51.1 percent of Cesky Telecom illustrates where companies are looking for new customers. Also last week, Hungary-based Matav Rt. took over Montenegro’s telecom company under a $151.7 million deal for a 51.12 percent stake in Telekom. And British telecom Vodafone Group PLC, said last month it would acquire two cell phone operators in Romania and the Czech Republic for $3.5 billion, expanding its reach into what it sees as attractive markets.

Analysts say there is more room for investors in Eastern Europe than in saturated Western markets, with huge growth potential as long as expectations are realistic. Countries that joined the European Union in 2004, like the Czech Republic, have adjusted their laws and regulations to those of older EU nations like France and Germany, adding to their investor appeal. Meanwhile, governments are selling their stakes hoping to raise extra cash needed for infrastructure or other investments.

Analyst Paul Budde said some governments have little choice other than to privatize their state-owned telecoms “as they find it very difficult to fund further investments in a rapidly evolving market.”

Investors also have been on the lookout to acquire operators in markets where they have not been represented, or to increase their stakes in larger markets. Some Czech market analysts expect Telefonica to use the company as a vehicle for further acquisitions in the region.

Analyst John Strand of Strand Consulting said many operators have improved their performances, reduced their debts and as they are looking to show growth “they either buy (new) or increase their own (stake)” in companies.

France Telecom announced Thursday it had agreed to buy out a group of minority shareholders in Orange Romania to increase its stake from 73.27 percent to 96.63 percent. And Vodafone is buying 79 percent of MobiFon in Romania and all of Oskar Mobil in the Czech Republic from Montreal-based Telesystem International Wireless Inc. of Canada. It already owned more than 20 percent of MobiFon.