O2 chief says has broached Germany merger with KPN

MUNICH Tue Jan 24, 2012 10:18am GMT

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MUNICH (Reuters) - Telefonica (TEF.MC) and KPN (KPN.AS) have made mutual approaches to merge their businesses in Germany without so far agreeing any basis to pursue the idea, the head of Telefonica's O2 Germany said on Monday.

A merger has long been seen on the cards and Rene Schuster told Reuters he did not foresee regulatory problems in reducing the number of mobile operators in Germany from four to three.

But he said the two carriers had never managed to agree a merger despite several years of circling one another.

"Every time I talk to them they say they're not for sale, and every time they talk to us we say we're not for sale," Schuster said in an interview on the sidelines of the DLD digital conference in Munich.

"I could never say what the regulator would do but all the analysis that we've seen leads me to believe they wouldn't oppose it," he said.

KPN's chief executive said in November it would make sense to merge in Germany with O2.

Schuster also said O2 did not rule out further cooperations with other operators, after sealing a deal last week to use Deutsche Telekom's (DTEGn.DE) fibre infrastructure to speed up its mobile network.

He added that O2 Germany's capital expenditure would likely hold steady at between 400 million euros (335.3 million pounds) and 500 million a year, or about 10 percent of revenue.

KPN, the largest telecoms player in the Netherlands, has been struggling to reverse declines in revenue, profit and market share in its domestic business, as competition has intensified while the scope to cut costs has narrowed.

The company is due to report results on Tuesday and will also give a strategy update after the surprise departure of its finance chief earlier this month.

Unlike Spain-based Telefonica, which has fast-growing divisions in Latin America, KPN only has substantial international operations in the mature German and Belgian markets to bolster its home performance.

In Germany it is the second-smallest of the four operators after Deutsche Telekom's T-Mobile, Vodafone (VOD.L) and before O2, and the only one not to have secured fourth-generation spectrum for more modern data services in a recent auction.

O2 posted 9 percent customer growth and 2 percent sales growth in the first nine months of 2011, and Schuster said the positive trend was continuing.

(Reporting by Georgina Prodhan; Editing by David Holmes)

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