Carphone Warehouse expands into Spain

Carphone Warehouse, the mobile phone retailer, is to expand its burgeoning fixed-line business by buying a Spanish operator in what will be its first foray overseas.

Carphone, run by Charles Dunstone, the chief executive, has already taken advantage of changing regulations to launch a UK fixed-line business called talktalk to rival BT Group.

Now it is to acquire Spanish phone company Xtra for up to €23.8m (£16m) to launch a similar business in Spain to rival Telefonica, the incumbent fixed-line monopoly.

In November 2002 Carphone bought Opal, a UK provider of private fixed-line telephone networks, for £65m. It used Opal's expertise to launch talktalk.

Known in the industry jargon as "carrier pre-select services", talktalk and Mr Dunstone's new Spanish service are taking advantage of deregulation across Europe to offer alternative telecoms services to the traditional carriers. Consumers no longer have to dial extra digits to access cheaper, alternative telecoms services or install special equipment in their homes.

Carphone plans to launch a residential fixed-line service using Xtra's existing infrastructure. The service will be sold to customers of Carphone's Spanish retail chain of mobile phone shops, called The Phone House.

Xtra already sells alternative telecoms services to small business and will continue to offer that service under its new ownership.

In the UK Carphone has enjoyed considerable success with its talktalk service. From a standing start a year go it expects to hit 400,000 customers by the end of this month and will start generating profits for the group next year.

Mr Dunstone said: "With the deregulation of the European telecoms market, the evolution of carrier pre-select services offering business and residential customers a seamless and lower-cost alternative to incumbent providers is becoming a natural and growing trend.

"We see opportunities to enter this market in a number of countries where we already have well-established operations, replicating and adapting the successful market we have developed with Opal and talktalk.

"The Spanish market is particularly attractive as our fist fixed-line step abroad, because of the critical mass and momentum of our retail business, and the relatively high market share of the incumbent provider."

Carphone will pay €11.5m in instalments over the next two years for Xtra, with a further €12.3m payable over the same period if certain earnings targets are met by the Spanish operator.

At the moment Xtra carries 45 million minutes of traffic per month. It generated turnover of €34.9m in the year to December. Carphone said the company was "marginally profitable" before interest, tax, depreciation and amortisation.

The Spanish fixed-line market is worth €6.2bn a year, according to Carphone, of which €4.2bn relates to call revenues and €2bn to line rental and connection charges. At the end of 2003 Telefonica had a 77 per cent market share of fixed-line voice traffic and a market share of approximately 87 per cent.