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RCS & RDS tries steal a piece of Romtelecom ahead of OTE

We have previously highlighted the intense competitive nature of the Romanian pay TV market, but nothing highlights it better than the nuisance bid ma

By PETER WHITE

Published: 19 May, 2011

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We have previously highlighted the intense competitive nature of the Romanian pay TV market, but nothing highlights it better than the nuisance bid made last week by Romanian pay TV operator RCS & RDS, to buy out the government’s holding in its incumbent Telco, Romtelecom.

Deutsche Telekom controls a majority of Romtelecom, some 54%, through Greece’s OTE which it controls by being the largest single shareholder with just a 30% stake in OTE, and the Romanian government said as far back as November that it would like to sell its 46% stake. The cheeky bid was highlighted in the Balkans.com local business web site, and is being treated with disdain by the government Communication Minister, who says that the first issue is whether or not OTE will buy the rest, and then saying if that doesn’t happen, they will offer it on the public markets.

The head of the OTE group was said to be on his way to talk to the government over a possible takeover of the state’s share in Romtelecom.

The RCS & RDS bid is clearly about making it hard for Deutsche Telekom’s OTE to go through with the deal, and seeks to derail a full merger. Previous reports have put the stake’s value to OTE at €350 million, valuing the entire company at €761 million. That’s fairly conservative given that its quarterly revenues were €166.3, which would put it at a run rate of around €640 million annually. However it has lost around 10% in revenue terms from last year and gone from a profit to a loss, so perhaps the value isn’t so far off the mark. The government however thinks that the 46% stake is worth more like €1 billion.

No-one has actually said what kind of bid RCS &RDS is planning, but if it could muster a high enough offer, it could force the government to look to the public markets and then it could pursue the stock there at its leisure.

RCS & RDS has operations under the DigiTV brand in Romania and in the Czech Republic, Croatia, Hungary and Slovakia using both cable and satellite, and last week was under pressure to catch up program payments in its Czech operation, where it is rumored to be running short of cash. The company is run by one of the richest men in Romania, Zoltan Tezsari, who set it up around 15 years ago.

But even if RomTelecom is having trouble remaining in profit, its pay TV operations have caused a major price war. It offers the same Dolce TV bouquet in both satellite and IPTV. It grew 113,000 pay TV homes in 2010 to reach 1.054 million, and has added a further 10,000 this quarter, taking it to 1.064 million. DigiTV has grown even faster with an additional 300,000 pay TV homes during 2010, and both of these have put UPC under pressure in Romania which dropped around 28,000 homes in cable, but mostly made these back up with its new satellite system. Romtelecom is in the process of buying out two further players Akta and Boom, to add another 155,000 satellite TV customers.

RCS & RDS is clearly playing a spoiling game, because it has been known for some time that it is in talks to buy UPC in the region, and it is unlikely to be able to both do that and buy half of its biggest pay TV rival. In fact because it is not public and because it appears to have financial problems of its own in the Czech Republic, where it has reported missed some of its content payments, it may be able to do neither.

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