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Cosmote helps OTE profits March 21, 2008

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Greece’s largest telecom group Hellenic Telecommunications Organisation, OTE, soon to be 20 percent-owned by Deutsche Telekom, grew profit by 15 percent last year, with mobile and Internet operations providing the bulk of earnings.

OTE increased its stake in its Cosmote mobile phone unit to 99 percent and focused on the Internet to offset a continuing fall in income from fixed-line telephony as Greece deregulates its telecom market. The strategy may pay off – revenue from mobiles and fast Internet ADSL take-up was significantly higher than income from OTE’s fixed-line operations.

“The full integration of Cosmote… puts us in a much better position to benefit from the growing convergence between fixed, mobile and broadband,” said OTE President and CEO Panagis Vourloumis in a statement. “The nature of our competition is changing and intensifying throughout our markets.”

The total number of ADSL subscribers in the country doubled to about 1.1 million customers, OTE said.

OTE said net 2007 profit rose to 662.6 million euro compared with 575 million a year earlier, with sales up 7.3 percent to 6.32 billion. Cosmote’s contribution to the top line was about 3.06 billion for the year. “Without Cosmote’s strong 2007 performance the results would have been worse,” said an Athens-based analyst who declined to be named. “The increase in mobile users is one key to future growth, which is also why Deutsche Telekom is interested in OTE.”

On Monday, Deutsche Telekom said it had agreed to buy a 20 percent stake in the Greek group with a view to increasing its holding as part of growth plans based on the acquisition of mobile phone companies. Deutsche Telekom is also seeking to buy part of the government’s 28 percent stake. Greek media have said Deutsche wants to lift its stake to about 30 percent.

OTE expects Cosmote, which will be delisted soon, to maintain its position as Greece’s market leader and sees the unit’s revenue for 2008 up by about 15 percent, helping offset a drop of about 4 to 5 percent in fixed-line revenue, it said.

Greece’s phone regulator appeals reversal of fine for Vodafone March 18, 2008

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Greece’s telecommunications regulator appealed against a court decision that reverses a 1-million-euro fine imposed by the watchdog on Vodafone’s Greek unit.

The regulator also plans to appeal against court decisions reversing fines imposed on cellular operators Cosmote and TIM Hellas, which is now called Wind Hellas, according to a statement from the National Telecommunications and Post Commission. The regulator fined the companies, the country’s three biggest mobile-phone operators, 1 million euros each in March 2006 for breaching competition rules linked to text messages. The three breached regulations when they simultaneously raised prices for short text messages in 2005, the watchdog said.

On a different subject, Ericsson won a Wind order. Ericsson, the world’s largest maker of wireless networks, won an order from Greek telecom operator Wind Hellas. Ericsson will provide network design and system integration, and supply equipment to Wind Hellas, the Stockholm-based company said yesterday in a statement.

OTE goes for full control of Cosmote November 13, 2007

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Hellenic Telecommunications Organization (OTE) SA, Greece’s biggest phone company, gained the most in almost two months in Athens trading after it bid 2.8 billion euros ($4.1 billion) in cash to buy the shares it doesn’t already own in its unit Cosmote Mobile Telecommunications SA.

OTE shares gained 1, or 4 percent, to 26, the biggest one-day gain since September 14. Cosmote shares gained 1.24, or 4.96 percent, to 26.24, the highest level since the stock began trading in 2000. The Athens-based company said it would pay 26.25 each for 107.7 million Cosmote shares, according to a bourse filing late on November 9. OTE already owns 67.8 percent of Cosmote, its most profitable unit.

Buying the Cosmote stake will give OTE access to all of the unit’s dividends and cash, as well as faster-growing sales and earnings from divisions in Eastern European countries such as Bulgaria. Cosmote, with 14 million customers in five countries, is one of the last mobile units of Europe’s former telecommunications monopolies to be publicly traded.

“Although the debt-financed nature of the offer will have a slightly negative impact on OTE’s financial ratios in the short term, it will strengthen the group’s position in the medium to long term,” Moody’s Investors Service said yesterday in a statement. The ratings service affirmed its Baa1 rating on OTE and said the outlook on all ratings “remains stable.”

OTE was raised to “outperform” from “neutral” by Natasha Roumantzi, an analyst at Piraeus Securities. The buyout will increase per-share earnings for OTE by an average of 8 percent next year and in 2009, and give the company a bigger part of Cosmote’s growth, Roumantzi wrote. The price estimate for OTE shares was raised to 28.10 from 25.60.

Cosmote is OTE’s shield against an aggressive takeover November 12, 2007

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Telecom decides to buy cell network’s minority stakes, borrowing 2.9 billion euros > The clash between the government and OTE on the one side and Marfin Investment Group (MIG) on the other is culminating for the control of the country’s telecommunications giant.

The move to acquire minority stakes at leading cellphone network Cosmote on Friday created a barrier to the threat of an aggressive takeover attempt, but the corporation is going to get burdened with a new debt of 2.9 billion. This will be the cost of the acquisition of 33 percent of Cosmote, about 110 million shares, by its parent company.

The move was not at all popular with MIG. This was evident by the visit of the group’s Vice President, Andreas Vgenopoulos, on Friday afternoon to the office of the Chairman and CEO of OTE, Panagis Vourloumis. Vgenopoulos aggressively asked the OTE head to call off the meeting of the governing board of OTE which was going to start 90 minutes later, with the issue of the acquisition of minority stakes of Cosmote as the main subject.

Vourloumis, however, did not accept Vgenopoulos’s demand and on Friday afternoon the board members decided to acquire all Cosmote shares that did not already belong to the corporation through a public offering. OTE will pay 26.25 percent per Cosmote share. Shares are priced at a premium of 5 percent of the closing price on Thursday on the Athens Stock Exchange. Toward this end, OTE will proceed with the issuance of a loan jointly organized by four foreign banks, including Merrill Lynch and Morgan Stanley.

According to Vourloumis, the new borrowing by his company is not expected to hurt its credit rating. He informed the board that the ratio of borrowed to equity capital of the company will rise to 1.9 from 1.2 today. This, the OTE head suggested, is tolerable for a corporation the size of OTE’s.

Vourloumis also informed the board members that Cosmote will not be absorbed by OTE. He believes that the cellphone company would be better off if it stayed outside its parent firm, as it has reached a particularly satisfactory level of business operations and efficiency, which might be threatened in the case of an absorption attempt by the parent firm.

The same attitude, more or less, was followed by Deputy CEO Michalis Tsamaz when speaking on Friday to analysts on the occasion of the publishing of the nine-month results of Cosmote. He said that a closer relationship between the parent and subsidiary firm will allow the group to compete better with its multinational rivals, Vodafone and Wind.

The Vourloumis proposals on the Cosmote minorities were voted for by all board members except for Theodoros Veniamis, the member of the investment committee of MIG. He argued that such an issue should have been discussed at the extraordinary general meeting of OTE that had taken place two days earlier and not in the meeting of the board.

Yet the acquisition of the Cosmote minority stakes is a barrier to the threat of an acquisition move by OTE itself. The telecom shows low borrowing and as a result a candidate buyer would need to spend 2.5 billion to 3 billion to buy it out. As soon the buyers do that, they could then make OTE borrow money to give them their money back, in a leveraged buyout.

This is exactly what happened in 2006 with former TIM Hellas, now Wind, which was over-indebted with 3 billion euros with the main purpose being the offering of capital gains to its shareholders, who reaped them through capital returns. However, the new borrowing to which OTE is resorting may now render it less attractive for such an acquisition.

Yet this is not the only reason why OTE is spending 2.9 billion: The corporation’s administration was forced to make this decision as Economy and Finance Minister Giorgos Alogoskoufis had rejected the plan of acquiring the minority stakes of Cosmote through an OTE share exchange. In such a case, the stake that the state would have in OTE would become less, from 28 percent to about 24 percent, which is something the government is not prepared to discuss.

One of the chapters in the book of international financial reporting standards (IFRS) that defines the meaning of “associate business entity” was under scrutiny by OTE legal advisers in the last few days, as it almost describes the company’s relation to MIG.

The IFRS say that “a business entity is considered associate if the investor has significant influence on it even if it is not a subsidiary or part of a common business platform.” So how is “significant influence” defined? According to IFRS, this applies when the investor owns 20 percent of voting rights. There is, however, an alternative definition: “The investment may be smaller than 20 percent, as long as this influence can be clearly proven.”

Slowly, the situation becomes clearer as it is obvious that this can happen in more than one way: either by representation on the governing board or a similar administrative entity, or by participation in policy-making procedures. This in effect also means participation on the governing board.

This is the way OTE managers interpreted the persistence by MIG to acquire representation on the corporation’s board. In this fashion MIG could acquire “significant influence,” characterize OTE as its associate business entity and include it in its financial report. At least that is the interpretation given by OTE.

They would therefore have to deal with a stakeholder who would control more than 15 percent of their share capital and at the same time participate on the board and its key decisions, so as to exercise significant influence and proceed with an economic merging.

What would this mean? Simply, that MIG could incorporate OTE into its single financial report, add the corporation profits or capiralization to its own. Effectively, OTE would be like a subsidiary of MIG, which would cause great alarm at OTE headquarters. That is what drove the OTE board to its decisions on Friday. 

OTE is set to approve merger with Cosmote November 12, 2007

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The Governing Board of telecom giant OTE was last night set to agree to acquiring all minority stakes of subsidiary Cosmote, Greece’s largest mobile phone network.

Sources suggested that OTE intends to proceed to a public offering of 26.25 per Cosmote share in cash and borrow up to 2.9 billion euros to fund the move. OTE wants to merge with Cosmote to help offset a decline in its customer base since the liberalization of the telecoms market in 2001 which has seen clients leaving traditional fixed-line for mobile telephony services. In view of this the Athens Exchange suspended trading in shares of both companies yesterday, pending a buyout announcement.

Earlier yesterday Cosmote reported its profits rose 1 percent to 275.9 million euros in the year’s first nine months, hampered by foreign exchange losses. But sales grew 38 percent on soaring customer numbers, a sign its regional growth policy is bearing fruit. While profit was flat, Cosmote’s subscribers rose by almost 3 million in the nine-month period, bringing its total customer base to 14.1 million, 42 percent higher than last year.

Such customer growth is one of the reasons OTE is keen to completely incorporate Cosmote, analysts said. “It makes sense for OTE, financially and strategically as Cosmote is its fastest growing segment,” said analyst Vangelis Karanikas, at HSBC Securities. “It has strong customer growth, strong cash flow and a strong dividend.”

OTE currently holds about 67 percent in Cosmote and has been considering raising its stake to 100 percent to offset falling fixed-line revenues from increased competition. OTE expects to lose about 200,000 clients by the end of the year as smaller competitors such as Internet provider Forthnet and mobile giant Vodafone enter the fixed-line market.

On Thursday OTE had received shareholder approval to amend its charter to issue new shares, a move analysts say could make it easier for OTE to make a bid for Cosmote via a share swap. The remaining 33 percent stake is worth about 2.6 billion euros at current market prices.

Cosmote shares trade about 19 times estimated 2007 earnings, at a slight premium to European peers such as France’s Bouygues with a multiple of 17, according to Reuters Estimates. The shares, up about 11 percent so far this year, have underperformed the broader Greek market, which has gained about 21 percent.

Greece’s Cosmote has 3 million subscribers in Romania October 31, 2007

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Cosmote said it surpassed 3 million subscribers in Romania, beating a full-year target announced just a week ago.

Cosmote has added more new customers than local competitors including Vodafone Group Plc and France Telecom SA for the past three quarters, according to an e-mailed statement from the company. The Romanian unit is expected to be profitable on a net level in 2009, according to the statement.

Athens-based Cosmote is expanding its network in the country of 22 million inhabitants and adding more stores to win new customers. Together, Vodafone and France Telecom have almost 17 million clients in Romania. Cosmote, Greece’s biggest mobile-phone company by users, owns a 70 percent stake in its Romanian unit, and Romtelecom SA, the country’s former phone monopoly, owns the rest. Both companies are majority-owned by Hellenic Telecommunications Organization SA, [OTE], Greece’s biggest phone company.

Cell phone rates remain high October 30, 2007

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The cost of cell phone usage in Europe recorded a drop of 20 to 30 percent in the period 2002-2006, according to a survey carried out by consulting firm Teligen on behalf of the European Commission.

The largest part of cost reduction was achieved in 2004 and after. However, there are still significant variations in prices for mobile phone usage across the continent. Denmark, for instance, is a veritable heaven for mobile phone users, as the monthly cost ranges between 7 and 17.60, compared to Germany where similar packages range from 22.60 to 75.30. Greece is somewhere in the middle, with packages ranging from 20.90 to 48 per month.

Data provided by the EU, in the Report on Telecom Price Developments from 1998 to 2006, show that specifically in Greece low-usage packages range from 20.88 (Cosmote 60, SMS30) to 22.98 (Vodafone 10); medium-usage packages cost between 27.71 (Cosmote 120, SMS 60) and 28.58 (Vodafone 100, SMS 50); and high-usage packages cost between 41.78 (Cosmote 240, SMS 60) and 48.21 (Vodafone 200, SMS 50).

Based on the above data, it is clear that Cosmote offers cheaper packages compared to Vodafone. Wind Hellas was not included in the survey as Teligen collected data from only the two largest players in each national market.

A catalyst for the reduction of mobile phone costs across the EU is generally considered to be the regulation of the market. National regulating authorities, urged by EU decisions, are imposing lower charges on mobile networks in an effort to balance out their difference with fixed-line networks.

This particular issue was discussed during a recent meeting in Athens on October 11, of heads of regulating authorities and relevant proposals are soon expected to find their way to the decision-making table.

Nevertheless, the European Commission appears to be in favor of a reduction in costs, with Vivian Reding, EU commissioner for information society and media, having recently said that the appropriate tools will be given to regulators for this purpose. “I know that many European regulators are working systematically on a joint approach of reducing mobile phone costs,” Reding said. She added, “I would support such an approach with all the tools at my disposal, with the main target being not to harm competition.”

A key element in mobile phone costs is the terminal fees charged on mobile networks. The terminal fee is the amount paid to the telecommunications provider on whose network a call is terminated. The fee is collected in the form of a bill by the provider of the network from which a call is made, and is then paid to the provider of the terminating network.

For many years, terminal fees on mobile networks have been many times higher than the corresponding terminal fees for fixed lines. In October 2006 for example, the termination of a call on Vodafone’s mobile network cost 0.125 per minute, while a call terminating on a fixed line network, such as the one operated by OTE telecom, during the same period cost 0.0086 per minute.

In the past, such costs used to be even higher, with the terminal fee costing more than 0.20 per minute. In 1993, when mobile telephony was introduced in Greece, terminal fees then amounted to Greek Drachmas 120 (about 0.40 euros) per minute.

The growth of mobile telephony in Europe has, to a certain extent, been funded by the high terminal fees paid by consumers. However, now that mobile providers have grown into robust companies, the terminal fees are dropping significantly, with the help of decisions made by regulating authorities.