Industry Trend Analysis - Low Demand For Bundling Main Issue For Tele2/Com Hem Deal - MAR 2018

BMI View: The deal between Tele2 and Com Hem is part of the convergence trend we have seen in Europe, as well as Tele2 focusing on its core markets. As bundling is not a major driver in the Swedish market, the new Tele2 will need to be flexible if it wants to compete effectively against incumbent Telia.

Tele2 has announced it will merge with Com Hem, the main cable player in Sweden. The merged entity will have 3.9mn mobile subscribers, 1.1mn pay-TV users and 800,000 broadband customers. The deal will see Com Hem shareholders own 26.9% of the shares of the merged entity, as well as receiving a payment of SEK6bn (USD729.4mn). Kinnevik, the main shareholder in both companies, has said it will back the deal, which is expected to be completed by the end of 2018. The new company would become the main challenger to incumbent Telia in the Swedish market, but its impact will be limited because of the lack of demand for converged services in the country.

The deal is the culmination of Tele2's recent strategy, with a much greater focus on its core markets in Sweden and the Baltics, and the disposal of non-core assets in Russia, Kazakhstan, Austria and the Netherlands (see 'M&A Picking Up In Europe', January 2 2018). The deal is also indicative of a major trend in Europe recently, the need for convergence. This was the rationale behind Tele2's deal with T-Mobile in the Netherlands, itself a response to the merger between Vodafone and Ziggo. Convergence has been a key driver for consolidation, as it comes with less regulatory scrutiny, especially from the European Union, as it usually does not change the number of competitors in each vertical market. The new Tele2 will be the main challenger to incumbent Telia, ahead of its rival Telenor in terms of market share, but the structure of the Swedish telecoms market is not favourable to bundling and convergence, meaning the deal's impact will be limited.

Low Demand For Multiplay Services
Multiplay Subscriptions (000), 2014-2017
Source: PTS

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