Morningstar | Tele2 Close to Closing Com Hem Acquisition
Tele2's strategy has been to move from operating as a mobile virtual network operator, or MVNO, to a full wireless operator. With its announced acquisition of Com Hem, the largest cable TV operator in Sweden, it is now moving into the converged world of bundles of fixed-line and wireless telephony along with broadband and pay TV that we have long been a proponent of in Europe. We like these strategic shifts in strategy. However, we were never fans of its move from a MVNO to being the fourth full wireless operator in the Netherlands as we thought the move was too late. Thus, we are glad to see its plans to sell the business to Deutsche Telekom. That said, we think there is a high probability that European regulators will reject the deal. We were disappointed with the price Tele2 received for selling its Russian business. However, the smaller size increases Kazakhstan's potential effect on the business. Kazakhstan contains many of the same growth opportunities that Russia had. The firm's business in this country has moved to consistent EBITDA gains, which should continue to grow, benefiting the whole firm.The firm's home base is Sweden, where it is the number-two operator after incumbent Telia. Assuming the acquisition of Com Hem and the divestiture of its Dutch operations go through, Sweden will account for 72% of Tele2's revenue and 78% of its EBITDA. The firm has done a great job of strengthening its strategic position in Sweden, first with the acquisition of TDC's operations in the country at the end of 2016, which significantly improved its enterprise business, and now with the acquisition of Com Hem that makes it a fully converged operator in Sweden. Sweden provides Tele2 with steady free cash flow to invest in its other markets.We have been pleased with Tele2's success in the Baltics, where revenue has grown in the mid- to high single digits the past two years, and we expect continued mid-single-digit revenue growth for the next couple of years as well, which provides another avenue for revenue growth beyond Kazakhstan and Sweden.Tele2 is engaged as a telecom operator. Co. provides mobile communication services, fixed broadband and telephony, data network services and content services. The mobile service comprises various types of subscriptions for residential and business customers as well as prepaid cards. Fixed broadband includes direct access, which is its own services based on access via copper cable and other forms of access, such as fibre networks, wireless broadband and metropolitan area networks. Fixed telephony includes resold products within fixed telephony. The product portfolio within resold fixed telephony consists of prefix telephony, pre-selection (dial the number without a prefix) and subscriptions.
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