Check out the valuations in this article
[? To the thread, how much will a G* subscriber be worth? Premium customers, premium valuation? djane]
The Anglo File: One2One's Growing
Market Share Makes It Ripe for
Takeover
By Nick Watson
U.K. Correspondent
5/12/99 7:00 AM ET
The scramble to buy One2One, the U.K.'s fourth-largest
mobile phone operator, shows just how much a presence in
the British cellular market is worth. Or at least, how much
Deutsche Telekom (DT:NYSE) seems to think it's worth.
In March, the partners that own One2One -- Cable &
Wireless (CWP:NYSE) and MediaOne (UMG:NYSE) --
announced they had hired Merrill Lynch, the huge
American investment bank, to explore strategic possibilities
for the venture. A floatation was mooted, but as the bids from
various parties began streaming in it became apparent an
outright sale would be the preferred choice.
One2One was initially thought to be worth between $8 billion
and $12 billion, but Deutsche Telekom has apparently put in
a bid that values the mobile operator at around $16 billion. [Much less than G* current market value]
While DT refuses to comment on its reported interest in
One2One, the telecoms giant will raise about $11 billion in
June (in part for overseas acquisitions) even as it deals with
European authorities about its proposed merger with
Telecom Italia.
The German company isn't alone in its aspirations of owning
One2One. Other interested parties include Mannesman,
France Telecom, Vivendi and Microsoft.
One Plus One Equals Three
So what makes One2One so valuable? Although the
smallest of the U.K.'s cellular operators, it is managing to
increase its market share of a booming sector in the U.K.
U.K. cellular operators added a record 1.9 million new mobile
users during the first quarter of this year, which was
significantly more than the 562,000 subscribers added in the
same period last year. This means the penetration level in
the U.K. has now reached 26% of the population, compared
with 16% a year ago and 22% only three months ago.
During the first quarter, One2One added 329,000 new users,
bringing its subscriber base to 2.3 million and its total
market share to 15%, up from 13% a year ago.
According to figures obtained from MediaOne by Carnegie,
a Swedish investment bank, One2One had sales in 1998 of
$1.2 billion, up 58% from the year before. EBITDA in the
year was $76 million vs. $96 million in 1997.
Assuming a price of $16.3 billion, Fredrik Danielsson, an
analyst at Carnegie, says this would imply an equity price of
$7,240 per subscriber, a multiple of 13.5 times sales in 1998
and 214 times EBITDA in 1998.
By comparison, Orange (ORNGY:Nasdaq ADR), the U.K.'s
third-largest mobile operator, has an equity price of $5,360
per subscriber and is trading at only seven times its 1998
sales. Vodaphone (VOD:NYSE), by far the largest of the
U.K.'s mobile firms, has a price of $9,826 per subscriber and
is trading at 13.6 times last year's sales.
A Bid Too Far?
Is One2One looking expensive? Certainly, at least when
compared to mobile phone companies in more mature
markets, like Sweden, where the cell phone penetration rate
is nearly double that of the U.K., says Danielsson.
Although it can be argued that One2One justifies a similar
sales multiple to Vodaphone because it is increasing its
market share and is growing at a faster rate than the other
British operators, a breakdown of the subscriber base
reveals some worrying trends.
One2One's customer growth in the first quarter was
overwhelmingly dominated by prepaid customers, who tend
to be the less affluent segment of the population. Inevitably,
this type of subscriber spends less on phone calls, which
negatively impacts average revenue per user, or ARPU.
Of One2One's 329,000 new users, about 295,000 were
prepaid, meaning that these customers now account for 42%
of its subscriber base, up from 8% a year ago. By
comparison, prepaid makes up only 33% of Vodaphone's
U.K. subscriber base, and 28% of Orange's.
Further, One2One has probably just touched off a price war
in the industry by its announcement last month of a fresh
round of tariff cuts. Before the announcement, One2One's
prices were on average between 10% and 15% below those
of its rivals, which was probably sustainable because of the
premium such brand names as Vodaphone and Orange
demand.
However, One2One's new tariffs mean its rates are now
some 30% below the rest of the market, which is sure to
prompt a reaction from its rivals and lead to corresponding
decreases in ARPU and profits in the industry.
Ultimately, the value of any commodity depends on how
much someone is willing to pay for it. Luckily, for Cable &
Wireless and MediaOne, the main bidder is a company that
thinks a merger with Telecom Italia is worth $80 billion.
© 1999 TheStreet.com, All Rights Reserved. |
