Close to the Wind

Vodafone in Greece: Vodafone's small Greek wedding may never reach the altar. But if the telecoms group can tie the knot on its courtship with weaker rival Wind Hellas, other mobile operators will be rehearsing their own marriage proposals. The dowry for this - and other "in-market" mobile consolidation - would be huge cost efficiencies.

Crunching rival operators together can create enormous value, in particular with savings in network infrastructure and marketing spend. A 2009 merger of Australia's third and fourth-placed operators, Vodafone and Hutchison Telecommunications' 3, produced synergies with a net present value of more than A$2 billion, for a group with combined revenues of A$4 billion.

 

The Greek talks, which Vodafone stresses are at an early stage, are more evidence of the group's sensible portfolio clean-up strategy, after disposals in France, China and Poland. Vodafone Greece makes up just 1 per cent of the company's fair value, on Banco Espirito Santo estimates, so it's not of paramount importance to shareholders. But after a 19 per cent slide in its revenue from Greece last year, Vodafone needs to bulk up or get out.

It's not yet clear exactly what shape the proposed "business combination" would take, except that Vodafone denies reports of a 1 billion euro all-cash buyout. Maybe the hedge funds that own Wind Hellas after last year's debt-for-equity swap will agree to some kind of merger with Vodafone's existing Greek unit, perhaps leaving them as a minority partner in a Vodafone subsidiary. The British group now disdains minority stakes.

Vodafone says it has about 30 per cent of the Greek market by revenue, against Wind Hellas's 20 per cent and the 50 per cent enjoyed by Cosmote, owned by state-backed incumbent OTE. Competition watchdogs in Athens and Brussels are sure to be wary of allowing the first mobile duopoly in a sizeable European country, and will note that their Swiss counterparts blocked a similar deal last year. In reply, Vodafone must argue that a strong two-player market beats a dominant force crushing two stragglers, that price rises won't follow automatically, and that Greece's exceptional economic difficulties also call for lenience.

If Vodafone and Wind get a deal approved, long-awaited consolidation deals in bigger countries such as Italy, Spain, Britain and Germany would look less remote.