Takeovers in the perspective of telecoms market liberalisation

Romanian cable television group Astral is in talks to take over Kappa telecommunications operator, to the end of consolidating its position on this market, especially on the internet service sector and of obtaining financial gains at the moment the communications’ market is liberalised at the beginning of 2003.

US investment fund AIG New Europe Fund has recently operated a capital infusion ranging between 20-25 million dollars in Astral and part of the money is to be used to acquire Kappa operator. Sources close to the transaction state that discussions are held for buying a percentage between 60-100% in Kappa stock.

The value of transactions could vary around 8 million dollars. Contacted by Ziarul Financiar, the involved sides mentioned that the transaction could be concluded in September, but they did not comment on the figures mentioned as transaction value.

“Cable operators’ market has been much fragmented. Now, it is on its way to consolidation, following which several large operators will be left, with a different power of negotiation with suppliers. None of the smaller ones will resist,” stated a financial analyst.

The takeover will bring to Astral, beside the 40,000 subscribers, the know-how Kappa has on the domain of internet and data transmission on TV cable. Kappa’s model in the domain of internet will be used at the level of Astral subscribers, which will generate significant revenues.

“Kappa has vertically developed during the last years along a segment that existed at that time, offering superior services from the point of view of quality to its subscribers, as compared to many other Romanian cable operators,” say company officials.

“The internet can become during the following years the main income source for Romanian operators, in the context where their networks will allow them to offer such services,” said Mircea Suciu, chairman of the Romanian Professional Association of Cable Communications (APRCC).

Against an average income of 3 dollars/subscriber, it results that Romanian cable firms monthly cash in between 9-10 million dollars from television subscriptions.

At present, at the level of the entire cable industry in Romania, analysts’ calculations show that the internet does not represent more than four percentage points of total revenues, while the number of subscribers exceeds 3 million.

These revenues are largely invested in network modernisation, but several tens of million dollars, sums many smaller firms cannot obtain, are needed in order to offer new television programmes, internet services or vocal telephony. “Modernisisng a network takes investments between 80-100 dollars/subscriber,” says Suciu, meaning that at the level of the entire country sums amount to about 300 million dollars.

At present, on the market there are 500 cable companies at the level of the entire country and almost 1,300 operational networks. Romanian Cable System, Astral and UPC are the main country operators that hold almost half of the market. Very many investors are interested in this market, considering that it will be genuine business after the telecommunications market is liberalised. At the moment of liberalisation, such a company can offer to a direct strategic investor a high number of subscribers,” mentioned the above quoted financial analyst.