Carphone Warehouse buys Tele2 operations

London-listed Carphone Warehouse is set to offer residential telecoms services in the Republic as a result of a €15 million deal announced yesterday.

The group has agreed to buy the Irish and UK operations of Scandinavian cut-price telecoms player, Tele2, for €12.5 million in cash. The company will also assume liability for restructuring costs that will leave it with a further bill of approximately €2.9 million.

Carphone Warehouse announced that it bought the entire issued share capital of the Tele2 Telecommunications Services Ltd (Ireland) and Tele2 UK Communications. The pair are subsidiaries of Swedish plc, Tele2 AB. Carphone announced the deal in a statement yesterday.

The move means that Carphone Warehouse, better known as a mobile phones and equipment retailer, will launch its Talk Talk fixed-line service in the Republic.

The group said it would switch the Swedish operator's Irish and British customers to this brand.

Tele2 launched in the Republic late last year. It provides local, national, international and fixed-to-mobile calls to domestic users.

According to a memo circulated to potential buyers of its Irish arm by advisers PricewaterhouseCoopers, by last September, Tele2 had 40,000 customers, who had been spending an average of €24 a month with the company.

It was selling 13 million minutes a month. The document predicted that its revenues for 2005 would be €9.1 million, and estimated its gross margins at 28 per cent, or €2.6 million.

The memorandum stated that the Irish arm had accumulated a "significant level of tax losses" in the business. It suggested that its ultimate buyer would be able to write these off against its profits.

At its launch in the Republic, the company said that it would be able to undercut the dominant player, Eircom, by up to 77 per cent on individual calls.

It operates through a system called carrier pre-select (CPS), which means that it chooses the cheapest network to provide individual calls.

Tele2's British business has 188,000 customers, according to the Carphone Warehouse statement.

Tele2's chief executive and president, Lars Johann Jarnheimer, indicated that the Irish and British businesses were not delivering the returns that the group had anticipated.

"The way the market for alternative operators in the UK and in Ireland looks today, we can get significantly better returns by reallocating their budgets to other markets," he said.

Chief executive of the Irish operation, Mark O'Toole, said this effectively meant that the group was focusing its efforts on its operations elsewhere in Europe.

The company has a presence throughout western and eastern Europe and Russia.