AUSTRIAN SUBSIDIARY OF WESTERN WIRELESS SOLD

UNCLAS VIENNA 002696

SIPDIS

DEPT FOR EB/CIP (TIMOTHY FINTON) AND EUR/AGS

USDOC FOR NTIA (CHRISTINA SPECK)

USDOC FOR OTT (JOSEPH BURTON)

E.O. 12958: N/ A

TAGS: ECPS ETRD EU AU
SUBJECT: AUSTRIAN SUBSIDIARY OF WESTERN WIRELESS SOLD

REFS: A) VIENNA 2530 B) VIENNA 0138

Summary

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1. On August 9, T-Mobile, a subsidiary of the German

Telekom's T-Mobile group, bought tele.ring, the

successful Austrian mobile phone subsidiary of

Alltel/Western Wireless, for Euro 1.3 billion. With the

purchase of tele.ring, T-Mobile solidified its place as

the number two mobile phone operator in Austria.

Austria's largest operator, Mobilkom, and T-Mobile now

have over three-fourths of the Austrian mobile phone

market, raising duopoly concerns. Austrian telecomm

regulators and the European Commission plan to review the

takeover to ensure conformity with EU merger regulations.

End Summary.

U.S. Subsidiary tele.ring Sold

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2. On August 9, T-Mobile, a subsidiary of the German

Telekom's T-Mobile group and Austria's second largest

mobile phone operator, purchased tele.ring, the

successful Austrian mobile phone subsidiary of Western

Wireless, which Alltel recently purchased. In an

unexpected development on July 29, T-Mobile submitted a

last-minute Euro 1.3 billion bid for tele.ring,

reportedly outbidding the only previous bidder, the U.S.

private equity firm Permira, by Euro 70 million. T-

Mobile did not engage in a due diligence check and did

not demand a discount because of a new tax on mobile

phone masts in the state of Lower Austria (ref A).


3. July 2005 statistics indicate T-Mobile is the number

two operator in Austria with a 25.3% market share.

Mobilkom, a subsidiary of Telekom Austria, is the number

one operator with a market share of 40.7%. "One" holds

the number three market position with 18.9%, followed by

tele.ring at 11.4% and Hutchinson "3" Austria with 3.7%.

The tele.ring takeover will boost T-Mobile's market share

to 36.7%, close behind Mobilkom. However, analysts

predict that up to 20% of tele.ring's customers may

change providers following the takeover. Hannes Leo,

telecom expert with the Austrian Institute for Economic

Research, expects market concentration and the absence of

tele.ring's aggressive sales and pricing policies will

lead to reduced competition and higher mobile phone fees

in Austria.


4. Mobilkom and T-Mobile together will hold more than

three-quarters of the Austrian mobile phone market

(77.4%),which constitutes a de-facto duopoly. Given the

size of the deal and the potential impact on the Austrian

market, Walter Barfuss, Head of Austria's independent

Federal Competition Authority, said that T-Mobile must

now notify the European Commission about the tele.ring

purchase. Georg Serentschy, Managing Director of

Austria's telecom regulator (RTR),announced that RTR

will review the takeover's impact on competition, as well

as frequency issues. Serentstschy did not exclude that

the RTR might impose conditions on the takeover.

Comment

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5. With tele.ring's takeover, the U.S. business

community in Austria lost a prominent and successful U.S.

investor. The tele.ring sale did not result from

Austrian investment and economic factors, but, rather

from Alltel's decision to divest all of Western Wireless'

overseas operations.

van VOORST