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TELECOM GIANT BACKS AWAY FROM PARTICIPATION IN SLOVAK TELECOM PRIVATISATION

France Telecom holds 64% in Globtel

France Telecom expanded its operations on the Slovak telecom market by increasing its stake in the Slovak mobile phone operator Globtel GSM to 64% after buying an additional 29% from Slovak shareholder Slovtel in the last week of January.
The transaction showed that France Telecom, which has been active in Slovakia since 1996, was abandoning its bid to be the main privatiser of state-owned Slovenské Telekomunikácie (Slovak Telecom - ST), slated for sale in the next few months, and was instead committed to developing its mobile phone holdings. The French telecom giant said it was keen on acquiring the government's remaining 36% stake in Globtel, as well as on competing on the fixed-line market after it is liberalised at the end of 2002.


France Telecom's Bruno Duthoit says his company wants to acquire the remaining shares in Globtel held by Slovak strategic companies.
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France Telecom expanded its operations on the Slovak telecom market by increasing its stake in the Slovak mobile phone operator Globtel GSM to 64% after buying an additional 29% from Slovak shareholder Slovtel in the last week of January.

The transaction showed that France Telecom, which has been active in Slovakia since 1996, was abandoning its bid to be the main privatiser of state-owned Slovenské Telekomunikácie (Slovak Telecom - ST), slated for sale in the next few months, and was instead committed to developing its mobile phone holdings. The French telecom giant said it was keen on acquiring the government's remaining 36% stake in Globtel, as well as on competing on the fixed-line market after it is liberalised at the end of 2002.

According to Bruno Duthoit, Globtel's general manager from 1996 to 1999 and currently France Telecom's representative on Globtel Board of Directors, buying the stake from Slovtel had been a fortuitous chance and hadn't originally been an important part of France Telecom's strategy. "It [the purchase of the Slovtel stake] wasn't something that we were desperately waiting for," he said. "Slovtel wanted to sell its stake and we were offered it, so we bought it."

Duthoit refused to state the price paid for Slovtel's stake, while Slovtel officials were unavailable to comment on the sale.

Weighing advantages

Although Slovakia is not a rich country - the average hourly industrial wage is about $1.50, compared to over $15 in Germany - Duthoit said he believed there was still high growth potential in the mobile phone market. "We have been present in Globtel from its very beginning," he said. "We actually brought know-how and technology to the company. So we view Globtel as a tool for our further expansion."

France Telecom had originally planned to buy into Slovak Telecom when talks of privatisation began in earnest in 1997. But because ST's monopoly runs out on December 31, 2002, the company reasoned that any new investor would lose the advantage of a monopoly before it had had sufficient time to implement its programme and prepare for competition.

Another factor which had begun to change France Telecom's thinking on Slovak Telecom was the issue of market concentration - ST owns a 60% stake in Globtel competitor EuroTel, meaning that if France Telecom had bought the state fixed line monopoly, it would have had to dump either its Globtel or EuroTel holdings within 30 days.

"It was originally our intention to privatise into ST, but then if we had become owners of the company [ST], we would have had to sell the 60% stake they have in Eurotel very quickly in order to avoid a conflict of interest," said Duthoit. "And you know, when you sell quickly you don't sell for a good price."

Duthoit was supported by a source close to the industry, speaking on condition of anonymity, who said that the conflict of interest would have forced the Antimonopoly Office to reject a France Telecom purchase of ST. The source also thought that France Telecom could still reap the benefits of fixed line services. "I think that the rewards from services that ST currently provides are not lost for them [France Telecom]. In 2003, when ST loses its monopoly position, they can come back to the idea of investing into fixed line services," the source said.

This course of action was confirmed by Duthoit. "This is our plan for the future. When ST's monopoly falls, we would like to start providing classic national and international fixed line services," he said.

Sole ownership

In the meantime, France Telecom will have a chance to strengthen its position in Globtel because the 36% stake collectively owned by several big Slovak utilities will be sold in the first quarter of this year, according to the Economy Ministry. Slovenské Elektrárne, an electricity provider, holds 18.91% in Globtel, while regional utilities Západoslovenské, Stredoslovenské and Východoslovenské energetické závody account for 10.26% and gas utility Slovenský Plynárenský Priemysel owns 6.83%. According to Duthoit, France Telecom wants to purchase these holdings and become the sole owner of Globtel.

However, according to Márius Hričovský, an advisor to Economy Minister Ľubomír Harach, there are three other telecom giants interested in buying into Globtel, two of them European companies.

Credit Suisse First Boston (CSFB) was selected by the Ministry of Economy in mid February to act as manager for privatising the 36% stake in Globtel. According to Hričovský, the Economy Ministry expected CSFB to finish selecting the new shareholder by the beginning of April. Price, not loyalty to existing operations, would be the deciding factor, Hričovský said

"From our point of view, we are concerned only about revenues and the time of the entire operation, which basically means which company gives more," he said. According to Hričovský, even if France Telecom doesn't get the remaining stake, it would still have the dominant position in the company and would have nothing to fear from any new shareholder. "Even if some other company gets the 36% stake, I don't think it will change the situation in the company, because Globtel is a well-established firm," Hričovský said.

But according to the anonymous source, France Telecom was particularly anxious to get the remaining 36% stake because the firm didn't yet have 66.6% of the total shares in Globtel, which according to Slovak law is the minimum any shareholder needs to implement major changes to company statutes and management.

Globtel made a profit of 100 million Slovak crowns in 1999, well up from its 1998 loss of 2.08 billion crowns. Despite the profitable year, the source believed that Globtel needed an additional financial injection. "When its profit reaches two billion crowns, then it can be said that it is doing well," the source said.

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