US embassy cable - 05VIENNA2696

UNCLAS VIENNA 002696 
 
SIPDIS 
 
DEPT FOR EB/CIP (TIMOTHY FINTON) AND EUR/AGS 
 
USDOC FOR NTIA (CHRISTINA SPECK) 
 
USDOC FOR OTT (JOSEPH BURTON) 
 
E.O. 12958: N/ A 
 
TAGS: ECPS, ETRD, EU, AU 
SUBJECT: AUSTRIAN SUBSIDIARY OF WESTERN WIRELESS SOLD 
 
REFS:  A) VIENNA 2530  B) VIENNA 0138 
 
Summary 
 
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1.  On August 9, T-Mobile, a subsidiary of the German 
 
Telekom's T-Mobile group, bought tele.ring, the 
 
successful Austrian mobile phone subsidiary of 
 
Alltel/Western Wireless, for Euro 1.3 billion.  With the 
 
purchase of tele.ring, T-Mobile solidified its place as 
 
the number two mobile phone operator in Austria. 
 
Austria's largest operator, Mobilkom, and T-Mobile now 
 
have over three-fourths of the Austrian mobile phone 
 
market, raising duopoly concerns.  Austrian telecomm 
 
regulators and the European Commission plan to review the 
 
takeover to ensure conformity with EU merger regulations. 
 
End Summary. 
 
U.S. Subsidiary tele.ring Sold 
 
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2.  On August 9, T-Mobile, a subsidiary of the German 
 
Telekom's T-Mobile group and Austria's second largest 
 
mobile phone operator, purchased tele.ring, the 
 
successful Austrian mobile phone subsidiary of Western 
 
Wireless, which Alltel recently purchased.  In an 
 
unexpected development on July 29, T-Mobile submitted a 
 
last-minute Euro 1.3 billion bid for tele.ring, 
 
reportedly outbidding the only previous bidder, the U.S. 
 
private equity firm Permira, by Euro 70 million.  T- 
 
Mobile did not engage in a due diligence check and did 
 
not demand a discount because of a new tax on mobile 
 
phone masts in the state of Lower Austria (ref A). 
 
3.  July 2005 statistics indicate T-Mobile is the number 
 
two operator in Austria with a 25.3% market share. 
 
Mobilkom, a subsidiary of Telekom Austria, is the number 
 
one operator with a market share of 40.7%.  "One" holds 
 
the number three market position with 18.9%, followed by 
 
tele.ring at 11.4% and Hutchinson "3" Austria with 3.7%. 
 
The tele.ring takeover will boost T-Mobile's market share 
 
to 36.7%, close behind Mobilkom.  However, analysts 
 
predict that up to 20% of tele.ring's customers may 
 
change providers following the takeover.  Hannes Leo, 
 
telecom expert with the Austrian Institute for Economic 
 
Research, expects market concentration and the absence of 
 
tele.ring's aggressive sales and pricing policies will 
 
lead to reduced competition and higher mobile phone fees 
 
in Austria. 
 
4.  Mobilkom and T-Mobile together will hold more than 
 
three-quarters of the Austrian mobile phone market 
 
(77.4%), which constitutes a de-facto duopoly.  Given the 
 
size of the deal and the potential impact on the Austrian 
 
market, Walter Barfuss, Head of Austria's independent 
 
Federal Competition Authority, said that T-Mobile must 
 
now notify the European Commission about the tele.ring 
 
purchase.  Georg Serentschy, Managing Director of 
 
Austria's telecom regulator (RTR), announced that RTR 
 
will review the takeover's impact on competition, as well 
 
as frequency issues.  Serentstschy did not exclude that 
 
the RTR might impose conditions on the takeover. 
 
Comment 
 
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5.  With tele.ring's takeover, the U.S. business 
 
community in Austria lost a prominent and successful U.S. 
 
investor.  The tele.ring sale did not result from 
 
Austrian investment and economic factors, but, rather 
 
from Alltel's decision to divest all of Western Wireless' 
 
overseas operations. 
 
van VOORST