Vodafone buys into Swisscom ahead of mobile licence sale

Switzerland became the latest telecoms battleground yesterday when Vodafone and France Telecom, Europe's top two wireless groups, each announced deals to buy mobile assets ahead of next week's auction of third-generation licences.

Switzerland became the latest telecoms battleground yesterday when Vodafone and France Telecom, Europe's top two wireless groups, each announced deals to buy mobile assets ahead of next week's auction of third-generation licences.

Vodafone, the world's biggest mobile group, agreed to pay 4.5bn Swiss francs (£1.75bn) in cash or stock for a 25 per cent shareholding in Swisscom's market-leading wireless arm, Mobil Com. France Telecom agreed to pay E.on, the German utility created by the merger of Viag and Veba, 1.1bn euros (£700m) for its 42.5 per cent of Orange Communications, the second-biggest of Switzerland's three mobile operators, with 750,000 subscribers.

The deal will double to 85 per cent the stake in the Swiss franchise owned by France Telecom's Orange subsidiary. The consideration is to be paid 25 per cent in cash and 75 per cent in Orange stock when the enlarged subsidiary is refloated in the first quarter of next year.

Although the Swiss market is one of Europe's smallest, its revenue per subscriber is the highest. Some 68 per cent of the Swiss have mobiles and its 28p per minute calling charge is among the most expensive.

On Monday, Switzerland begins auctioning four third-generation licences. At least six bidders are expected to contest the sale, raising about SFr4bn.

Besides Mobil Com and Orange, bidders will include diAx, the smallest of Switzerland's three existing mobile groups. SBC Communications, the US phone company, owns 40 per cent of diAx, but is thought to be in talks with other shareholders, which include several Swiss utility and insurance firms, about raising its stake.

Michael Latimer, chief operating officer of international activities at Orange, said: "Orange Communications has had one of the most successful telecoms brand launches in Europe. We look forward to building on this within the enlarged Orange."

The completion of Vodafone's investment in Mobil Com is to coincide with the wireless company's separation from Swisscom. The purchase will be paid in two instalments: SFr2.2bn at completion, expected by March, and SFr2.3bn within a year. Vodafone can chose whether to pay in cash or shares, or both.

Vodafone stock ended down 1.75p at 256.25p. France Telecom shares ended up 1.3 euros at 120.3 euros.