L I R N E . N E T

Private equity takeover of telecoms

A working paper by Prof. William Melody discusses a telecom takeover operation in Denmark lead by a group of five foreign private equity specialists and their plans both at a national and regional level. The paper looks at the financial rationale, the legal aspects and the implications of this operation on the network development and public policy. Private Equity Takeover of Telecom Infrastructure in Denmark focuses on one national case but are lessons for other countries, both developed and developing, where similar takeover strategies are being proposed.
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Introduction

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On 1 February 2006, Tele-Denmark Communications (TDC), Denmark’s incumbent telecom operator and by far the largest player in the Danish market, was taken over by a private equity group (PEG), the Nordic Telephone Co. (NTC) in a leveraged buyout. In the largest takeover in Europe to-date for 76 billion DKK (about 10.3 billion euro), the purchase of 88.2% of TDC shares was made with borrowed funds secured by TDC’s assets. What makes the TDC case distinct is that this is only the second time a PEG has taken over an incumbent operator providing the vast majority of a country’s telecom facilities network, and is subject to sector specific regulation of its monopoly power and universal service responsibilities. Thus the consequences of this takeover for the Danish economy, and the government’s ability to implement its telecom sector and information society policies, are far greater than takeovers of firms in general industry where the fate of a single firm will have little effect on the long-term development of the industry or a country’s economy.

The Denmark experience with TDC will be instructive for other countries where incumbent telecom operators may be potential targets for PEG takeovers. The recent financial press has noted increasing interest by PEGs in the telecom sector, as well as the public utility infrastructure industries more broadly – airports, transport, gas, electric and water utilities, etc. This paper examines the TDC case and its implications for telecom sector and information society development in Denmark. It does not examine specifically the generic issues associated with the role of PEG investment in the economy generally or the implications for taxation. However, this case study provides an input to that ongoing examination, and will be especially relevant for infrastructure providers in the telecom sector more broadly, and for the public utility infrastructure industries generally.

The final version of this working paper will be published in the first issue of the Nordic and Baltic Journal of Information and Communication Technologies (NB!ict - see below for information about the journal).

About the Nordic and Baltic Journal of Information and Communication Technologies (NB!ict)

The new Nordic and Baltic Journal of Information and Communication Technologies (NB!ict) is an offspring of NordICT – a collaborative network of technical universities and private ICT companies in the Nordic and Baltic Sea region. The primary goals of NB!ict are twofold: to provide a platform for debate on ICT developments; and to present scientific work from or about the region.

NB!ict is an interdisciplinary journal focusing on interrelationships between technology developments in the ICT field and economic, political and other social developments. Published papers will be concerned with technology in context of economic, political and other social developments as well as implications of ICTs for broader societal developments. Analysis will consider both demand-side and supply-side issues of ICT hardware, software, applications, services and content.

More information on NB!ict from the NordICT website »

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