Price skirmish threatens Swedish mobile peace

STOCKHOLM, March 7 Wed Mar 7, 2012 10:18am EST

STOCKHOLM, March 7 (Reuters) - A price war is set to cast a pall over Sweden's mobile market, a recent bright spot in a gloomy European telecoms firmament, clipping revenues for leading operators Tele2, Telia and Telenor .

This week "3", 60 percent-owned by Hong Kong-based Hutchison Whampoa and the rest held by Sweden's Investor , launched an all-you-can-eat deal offering voice calls, SMS and internet surfing for 349 Swedish crowns ($51.4) a month, undercutting rivals' prices.

"I think there is a very, very high risk that Sweden embarks on a full-blown price war," Thomas Heath, analyst at Handelsbanken, said on Wednesday.

European telecoms firms such as Vivendi SA, France Telecom, Telefonica and Telecom Italia are under strong pressure from a cocktail of regulatory pressure, bruising competition and network upgrade spending.

But Swedish operators have been enjoying robust growth in their home market as tech-savvy customers have snapped up smartphones over the last couple of years, boosting data traffic and revenues.

Overall revenues for market leader TeliaSonera rose 2.1 percent in local currencies in 2011, but its Swedish revenues were up more than 9 percent.

Sales at Tele2, the second biggest mobile operator, rose 4 percent last year. It said in the fourth quarter that all the phones it now sells are smartphones.

Swedish mobile revenues at third-ranking Telenor were up around 10 percent.

"We have had reasonable price stability for nearly three years, and all the operators have done pretty well over that period," said a second analyst, who declined to be named.

"This (a price war) will destroy the market."

Heath said the biggest loser would be Tele2, which derives nearly a third of its core profit from Sweden. Handelsbanken this week cut its recommendation on the firm to reduce from accumulate.

"A subscriber who has chosen Tele2 will be willing to go to '3'. They are competing very much head on for the same subscribers," he said.

The second analyst said Telia stood to lose more.

"A similar subscription at Telia costs around 600 crowns, so it is really there that you can ask what they are going to have to do," he said.

Tele2's shares were up 1 percent at 129.20 crowns at 1332 GMT on Wednesday. Year-to-date, the company has seen its shares dip around 3.9 percent.

Telia shares, up 0.3 percent on Wednesday, have risen around 1 percent so far in 2012.

The European telecoms index was up 0.2 percent on Wednesday, but has dropped 3.7 percent since the start of the year.

Neither Telia nor Tele 2 could immediately be reached for comment.

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