European Telcos in Buy-out Mode for American Firms

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By Vittorio Hernandez | August 19, 2014 5:05 PM EST

A man walks past a Telefonica building in Barcelona, July 31, 2014. Spain's Telefonica SA showed early signs of a turnaround in its biggest market Spain after reporting a 15 percent fall in second-quarter income. REUTERS/Albert Gea (SPAIN - Tags: BUSINESS TELECOMS)
A man walks past a Telefonica building in Barcelona, July 31, 2014. Spain's Telefonica SA showed early signs of a turnaround in its biggest market Spain after reporting a 15 percent fall in second-quarter income. REUTERS/Albert Gea (SPAIN - Tags: BUSINESS TELECOMS)

European telecommunication companies are on a buying mode, and they are targeting telcos in North and South America.

Spanish telco giant Telefonica bid $8.99 billion in cash and stock for Brazilian operator GVT, which is owned by Vivendi of France, reports The Wall Street Journal. The early offer is seen as Telefonica's way of beating a tough competitor, Telecom Italia, for the same telco.

However, Bloomberg reported that Telecom Italia plans to make a €7 billion counter offer to GVT to win over its Spanish rival in business, which offered the equivalent of €6.7 billion.

But Telefonica, the second-largest telecom company in Europe, is not just after the Brazilian market but also the Mexican market, targeting Grupo Iusacell as its next acquisition.

Meanwhile, the Iliad, a French telco, offered $15 billion to acquire a 56.6 per cent stake in T-Mobile US, which jolted Sprint since it also wants to buy a stake in T-Mobile.

Analysts explain the buying spree of European telcos to search for more business opportunities due to the weak wireless telecom industry in the continent. This was caused by low consumer confidence, high competition and more government regulation, which has affected the bottom line of telcos as subscriber revenue dip.

Gyanee Dewnarain from the research firm Gartner estimates that average revenue per user in Frances has dipped by over 25 per cent, year-on-year.

Buying telcos in the Americas is the response of European firms to the need to upgrade in anticipation of higher data loads. Other giant European telcos such as Vodafone, Telefonica and Deutsche Telekom are already spending billions to upgrade.

Moody's analyst Carlos Winzer pointed out that 4G rollout is more advanced in the US than in Europe and the level of investment has been bigger, while CCS Insight analyst Kester Mann said that European telcos investing in the US market makes a lot of sense because the latter is thriving with relatively less competition and high prices.

Even the South American market is a good investment option because of the anticipated growth of the region's mobile data traffic as more middle-class consumers acquire smartphones that could access the Internet.

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A man walks past a Telefonica building in Barcelona, July 31, 2014. Spain's Telefonica SA showed early signs of a turnaround in its biggest market Spain after reporting a 15 percent fall in second-quarter income. REUTERS/Albert Gea (SPAIN - Tags: BUSINESS TELECOMS)
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