Vodafone, Hutch merge Down Under

Vodafone and Hutchison have merged their Australian operations under the Vodafone brand.
The companies, ranked third and fourth respectively in the local mobile industry, have established a 50:50 joint venture, VHA Pty Ltd, they announced in early February.

The new carrier will pay Vodafone 1% of service revenues each year for the right to its brand. VHA will retain the right to use Hutchison's 3 brand in Australia, although it is looks likely to wind down.

Analyst Paul Budde described the merger as 'inevitable"&brkbar; the writing was on the wall already some time ago.'

Both carriers have existing network sharing agreements with the mobile market leaders Telstra and Optus, although Budde said these would not be difficult to unwind.

Hutchison, which has been operating 3G services since 2003, signed a A$450 million ($287 million) infrastructure sharing agreement with Telstra in 2004 and also roams on part of Telstra's 850-MHz network.  Vodafone and Optus formed a similar agreement at the same time, sharing more than 2,000 3G base stations nationwide.

Under the terms of the merger, VHA will make a deferred payment of A$500 million ($336 million) to 'equalize the value difference between the respective businesses', a joint statement said. It will be structured as a shareholder loan from Vodafone to VHA and is expected to be repaid or refinanced within 18 months.

Vodafone CEO Vittorio Colao said the merger would create 'a company with the necessary scale to compete strongly in the mobile market.'

Nick Read, currently CEO of Vodafone Asia-Pacific & Middle East, will chair VHA. Nigel Dews, head of Hutchison Telecom Australia Ltd (HTAL), will be CEO.

The merged entity will become Australia's second largest operator by customer numbers, with around six million subs - four million from Vodafone and just over two million from Hutchison's five-year-old 3 service.  Total revenue for the year ended June 30, 2008 was A$4 billion.

By comparison Telstra has approximately 9.5 million and Optus 4.1 million mobile customers.
VHA will expand coverage to 95% of the population, of which 63% would have access to high-speed 3G services. It will draw on products from both Vodafone and 3.

The deal is subject to approval by ASX-listed HTAL shareholders, the Australian Foreign Investment Review Board and the Australian Competition and Consumer Commission. Vodafone Australia is a 100%-owned subsidiary.

The transaction is expected to close by mid-2009.

Budde said neither operator had been able to build sufficient mass in order to make them profitable.

'Mobile is a commodity market, size does matter and only when you have the right size will you be able to have the cost efficiencies,' he said.

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