January 29, 2014 / 3:30 PM / in 4 years

Fitch: Ono Takeover Could Boost Competition for Telefonica

(The following statement was released by the rating agency) LONDON, January 29 (Fitch) A takeover of cable operator Ono by either Vodafone or Liberty Global could intensify competition in the Spanish telecom market, adding to the pressure on incumbent Telefonica, Fitch Ratings says. A sale to Vodafone would have the potential to be most disruptive to the status quo by accelerating the take-up of bundled fixed-line and mobile services. These bundled, or convergent, services have proved popular with price-sensitive Spanish customers and help operators protect themselves against subscriber losses by improving customer loyalty. Telefonica launched its Fusion package in 4Q12 and had signed up nearly 2.6 million customers by the end of September 2013, while Ono nearly tripled the number of customers that subscribe to both fixed and mobile services in a similar period. But Ono only offers mobile services to the 1.9 million customers who already have a fixed line with the company, limiting the competitive threat it poses to Telefonica. A takeover by Vodafone, which has 14 million mobile customers in Spain, would create significant new cross-selling opportunities. Liberty Global does not have an existing mobile or fixed customer base in Spain, so it wouldn’t have the immediate cross-selling opportunities. But the company has a lot of experience in providing convergent services by buying wholesale access to other operators’ mobile networks. Its Virgin Media and Telenet businesses in the UK and Belgium are among the more advanced providers in Europe and it also has significant experience running fibre broadband networks. Telefonica has already announced plans to expand its fibre network to cover eight million homes by the end of 2015, from 3.5 million at the end of 2013. A takeover of Ono would make achieving this target even more important for the group in order to defend its market share and expand its convergent services offering. Irrespective of a deal, high unemployment and weak consumer confidence in Spain are likely to maintain pressure on domestic revenue at Telefonica. However, management have taken decisive action to preserve cash and restructure operations, which has significantly reduced risks around refinancing and the company’s ability to reduce leverage. Fitch has no specific information about a potential deal, but media reports indicate both Vodafone and Liberty Global have approached Ono shareholders about a possible bid. Contact: Stuart Reid Senior Director Corporates +44 20 3530 1085 Fitch Ratings Limited 30 North Colonnade London E14 5GN Mike Dunning Managing Director Corporates +44 20 3530 1178 Simon Kennedy Director Fitch Wire +44 20 3530 1387 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Pilar Perez, Barcelona, Tel: +34 93 323 8414, Email: pilar.perez@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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