Transfer Pricing Associates

Ono Makes Vodafone the Biggest Player on the Telecom Market.

post Tuesday March 18, 2014

Tags: ono, spain, telecom, vodafone

ID-100175126

The latest deal in European telecoms is Vodafone buying the largest cable operator in Spain for €7.2 billion. On Monday, the British company said that the acquisition of Ono will be financed from its sales in the United States. With Ono in its ranks Vodafone hopes to challenge the current market leader in Spain; Telefonica.

Ono has 1.9 million customers on its network that covers 70 percent of Spain, or 7.2 million households out of a total of 16 million. Ono is the third deal Vodafone has closed in Europe in the past two years. Purchasing existing companies in foreign countries enables Vodafone to offer mobile services and broadband connection to its customers, while they save money on building completely new networks.

Furthermore, Ono is able to achieve broadband speeds up to 200 megabits per second, because they built their network later than their rivals. This advantage Ono has even leads to a network that is 20 times faster than the other telecom companies in Spain. Another reason why Vodafone was interested in Ono is the fact that the network of Ono in the rural areas suits very well with the superfast networks Vodafone is co-building with Orange in cities such as Madrid and Barcelona.

Orange in cities such as Madrid and Barcelona.

Vodafone expects that the acquisition of Ono will enable them to save €240 million per year and to generate revenue of around €1 billion. The British company will try to sell its mobile services to the 7.2 million customers Ono has and vice versa. The purchase of Ono is also a way to stop paying so much to rent lines from the market leader Telefonica.

The price tag of €7.2 billion may seem like a lot compared to the operating cash flow of Ono, which is 10.4 times smaller than the actual price. However, it is almost double the €4 billion euro value of Vodafone‚Äôs current mobile business in Spain. Besides, the purchase of Ono gives Vodafone a huge number of 14 million customers by the end of the year, which makes the acquisition reasonable in comparison.

Vodafone had 25 percent of the mobile market, but this will likely increase by 2 percentage points due to the acquisition of Ono. As a result, Vodafone takes some distance from competitor Orange.

Source: reuters

Image courtesy of Renjith Krishnan  / FreeDigitalPhotos.net 

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