Shares in Dutch carrier KPN Telecom and Spain's Telefonica moved higher yesterday after the two former telecoms monopolies said they were in talks about merging one or more of their activities.
A full merger between the small Dutch group and the flagship Spanish company would create Europe's fourth-largest carrier behind Vodafone AirTouch, Deutsche Telekom and France Telecom, with a market capitalisation of around €146 billion (£115 billion) and a combined customer total of 28.5 million mobile users.
It would also give the two ambitious groups the firepower to make acquisitions in a fast-consolidating market and help them outbid rivals for costly new-generation mobile licences, which are being put up for grabs by governments across the continent.
KPN is in discussions with Eircom on how to dispose of the 21 per cent stake it built up as a strategic partner in the company before the former State monopoly's privatisation.
Industry sources said the current talks are focusing on the possibility of Telefonica, the leading carrier in the Spanish-speaking world, taking around 60 per cent of a combined entity in an all-share transaction.
After five weeks of negotiations, one industry source said a deal was "very close". But questions remain about whether Japan's biggest cellphone group, NTT DoCoMo, will also be brought on board - and whether KPN's US partner, BellSouth, is backing a deal.
KPN shares closed another 2.9 per cent higher at €125 yesterday, having soared around 10 per cent on Monday. Telefonica's stock closed a sharp 9.2 per cent higher at €26.74. Industry sources said that KPN was also holding talks with NTT DoCoMo, although the Dutch company declined to confirm any negotiations.
The Japanese giant's attraction lies in its broadband experience. It has a wide content offering for its i-mode Internet-enabled mobile phones, which are backed by a high-speed network.
Some sources said a deal between NTT DoCoMo and KPN, which is angling for more than 40 per cent of any combined entity with Telefonica, could yet leave the Spanish group out in the cold.
Both Telefonica and KPN are keen on buying Orange, the British cellphone group that will be divested by Vodafone later this year. A combination could give them the muscle needed to outmanoeuvre a keen rival bidder, France Telecom.
Analysts expect a merger of mobile businesses first, thereby forming a platform for further expansion as the divide between mobile and Internet becomes blurred by new technologies.
