BT buys German mobile group

British Telecom yesterday deepened its European presence when it agreed to pay £4.3bn cash to take control of Viag Interkom, Germany's number four mobile phone group. The deal coincided with Viag Interkom winning a next generation licence for £5.1bn as Germany's spectrum auction ended with bids totalling £30.6bn for six broadband wireless licences.

British Telecom yesterday deepened its European presence when it agreed to pay £4.3bn cash to take control of Viag Interkom, Germany's number four mobile phone group. The deal coincided with Viag Interkom winning a next generation licence for £5.1bn as Germany's spectrum auction ended with bids totalling £30.6bn for six broadband wireless licences.

The German auction reached a surprising conclusion with all six bidders agreeing to split equally the spectrum being auctioned. Besides Viag Interkom other winners were Vodafone unit Mannesmann Mobilfunk, Deutsche Telekom's T-Mobil, E-Plus Hutchison, France Telecom-backed MobilCom and Group 3G, an alliance of Spain's Telefonica and Finland's Sonera. Each of the six groups paid about £5.1bn for the spectrum on auction.

The City reacted coolly to the Viag Interkom buyout with concerns about BT's ballooning debt load, which could soon hit £30bn, pushing the shares down 11p to 812p - a new 20 month low.

Sir Peter Bonfield, BT's chief executive, said the acquisition would step up the urgency of the company's deliberations about balance sheet restructuring. "The board will take a view this year whether we IPO any businesses separately or in combination. We want to make sure we can keep our balance sheet under control and we will therefore be looking at disposals. We would like to get the borrowing down."

BT, which already owns 45 per cent of Viag Interkom, plans to exercise an option next year to buy the 45 per cent stake held by E.ON, the Germany energy group created by the merger of Viag and Veba. Norway's Telenor, which holds the remaining 10 per cent of Viag Interkom, has agreed to sell to BT on similar terms.

Analysts believe BT could move swiftly to lower debt through a combination of asset sales and flotations. The heavy investment in Viag Interkom, which now stands at £10bn, could be the prelude to BT raising cash through the flotation of a minority stake in its wireless division, which was set up as a separate business unit earlier this year.

Sir Peter said BT remains committed to retaining its 'A' credit rating. However, Standard & Poor's, the rating agency, has placed the debt grade of BT and other telecoms firms under review owing to the high cost of developing next-generation mobile networks.

It is thought BT could raise around £9bn through the sale of minority interests in Canada, South Korea, Spain and elsewhere. A flotation of a minority of shares in the wireless division, meanwhile, could raise billions of pounds more.

BT executives believe that some pieces of the existing group are peripheral to the company's future direction and should be sold. Other operations, they acknowledge, could be floated to crystallise value that has not accrued to the group's share price.

Viag Interkom gives BT 2 million mobile subscribers in Germany's fast growing cellular market where subscriber penetration, at about one-third of the population, lags other European countries. In comparison, more than half of Britons own mobile phones.

BT also gets control of Planet Online, an internet service provider with 700,000 subscribers, and an advanced fixed line network.

Analysts said BT's timetable to finalise the business's restructuring would now take on greater urgency.

Edwin Lloyd, analyst with ABN-Amro, said: "I suspect they'll have to clarify their position on how there going to address their funding. They can indicate they will raise so many billions, either from disposals or IPOs."