Cosmote Romania Agrees to Buy Zapp for 207 mil. Euro, Gains 3G Licence

Cosmote, OTE's mobile unit, says that its Romanian business signed an agreement for the acquisition of Telemobil—its smaller competitor, which operates under the Zapp brand—from Saudi Oger, the operator's Saudi owner, for 207 million euro. The amount consists of an equity value of 61 million euro, as well as debt and other obligations worth 146 million.

Cosmote's chief executive, Michael Tsamaz commented on the acquisition—which is still subject to regulatory approvals—by saying that "the deal signed today marks a new cycle of growth and expanded customer base for Cosmote Romania since the 3G and CDMA licences and infrastructure allow the company to offer cutting-edge data and voice services in Romania".

Outlook and Implications

• Romania's First Mobile Operator Sold: Zapp is Romania's oldest mobile operator, having launched its services in 1993. A CDMA operator, it was initially backed by Qualcomm, which in January 2008 sold its stake to Saudi Oger, making the latter the unit's full owner (see Romania: 14 June 2008: Saudi Oger Acquires 50% Stake in Telemobile Owner Inquam). Besides the CDMA operations, which Zapp runs in the 450-MHz band, by buying the carrier Cosmote also gains its 2100-MHz UMTS licence, granted in late 2006 (see Romania: 16 October 2006: Telemobil and RCS&RDS Win 3G Licences). According to Cosmote, in 2008 Zapp's subscription base comprised 374,000 post-paid customers and its revenue amounted to 61 million euro. The agreed purchase price is somewhat lower than the 200 million euro mentioned in media reports in May (see Romania: 15 May 2009: Cosmote Romania Agrees to Acquire Zapp—Report).
• Five Becomes Four: For 2008, regulator ANC reports 28.6 million valid SIM cards, up 18.2% year-on-year (y/y) and representing a penetration rate of 133 subscriptions per 100 inhabitants, against 112.4% a year earlier (see Romania: 9 June 2009: Value of Romanian Telecoms Market Up 7.2% in 2008—Regulator). Although the ANC considers some 14% of the subscriptions inactive, the penetration rate of the active ones—113.8%, against 94.8% in 2007—indicates a mature sector. As of end-2008, market leader Orange reported 10.355 million customers, which against the regulator's data would give it 36% of all subscriptions, with Vodafone's 9.650 giving it a slice of 33%. With a client base of 5.894 million, Cosmote trails them at around 21% of the total; the remaining one-tenth of the market is split between RCS&RDS and Zapp, with estimated market shares of around 9% and 1% respectively.
• Cosmote Finally Gains 3G Licence: IHS Global Insight's view is that, rather than Zapp's customer base, the acquisition's real attraction for Cosmote is the carrier's 3G concession—something which the buyer itself has thus so far lacked, having lost the 2006 licensing contest to Zapp and cable group RCS&RDS. This is significant for the long-term development of Cosmote's business, as the Romanian mobile market saturates further; the operator must come up with new sources of growth. At end-2008, the operator reported monthly ARPU of six euro, which was down from five euro a year earlier; for comparison, Vodafone's ARPU stood at 9.9 euro, against 10.8 a year earlier. It is this gap which Cosmote will start narrowing with its new data service offerings.