Telekom Austria to pull out of SBB sale-source

Reuters

* Uncertainty over Austrian frequency auction costs

* Bids due for Serbian SBB on Thursday-source

* T.Austria seeking to dominate central, eastern Europe

By Georgina Prodhan, Angelika Gruber and Arno Schuetze

VIENNA/FRANKFURT, Oct 9 (Reuters) - Telekom Austria is set to pull out of the bidding for Serbian cableoperator SBB due to uncertainty over how much it will have topay for new frequencies on its home turf, a source close to thematter said.

Results of an Austrian frequency auction likely to costTelekom Austria hundreds of millions of euros are expected onlynext week, two industry sources said, but binding bids for SBBare due on Thursday, according to a financial source.

Telekom Austria wants to buy SBB, valued by analysts at 860million to 1 billion euros ($1.17-1.36 billion), as part of aplan to become the dominant telecoms operator in central andeastern Europe.

Austria's biggest carrier was expected to carry out acapital increase to help finance the acquisition, but wouldstruggle to raise enough for the auction on top should this costmuch more than the roughly 400 million euros analysts expect.

"As it looks at the moment, there won't be a bid," said thesource close to the matter.

Majority owner Mid Europa Partners plans to sell SBB, inwhich the European Bank for Reconstruction and Development alsoowns a stake.

One financial source close to the matter said private equitygroups such as Providence, Cinven, KKR andAltice Finco were expected to hand in bids for SBB.

Telekom Austria, SBB, KKR and Cinven declined comment, whileProvidence and Altice Finco were not immediately available.

SEALED BIDS

In the first phase of Austria's spectrum auction - now inits fifth week - total bids topped 2 billion euros, according toReuters calculations and confirmed by a source close to theprocess.

Sealed bids are now being submitted, two industry sourcessaid, and the final price is likely to come down as the winnerswill pay sums approximately equal to the second-best bids foreach block of spectrum.

The other Austrian carriers, Deutsche Telekom's T-Mobile and Hutchison Whampoa's H3G, are expected tocontinue participating in the auction but none is allowed totalk about it to eliminate any suspicion of collusion.

The Austrian regulator wants to raise at least 526 millioneuros by auctioning frequencies that operators need in order tomaintain or gain market share by building next-generationnetworks with greater speeds and capacity.

The regulator declined comment on Wednesday.

Should Telekom Austria increase its share capital to financethe auction costs, Carlos Slim's America Movil, whichowns 23 percent of Telekom Austria, is expected to take part toat least maintain its stake.

The Austrian state holding company, Telekom Austria'sbiggest shareholder with 28 percent, has said it does not wantits stake to be diluted.

Telekom Austria's market value is 2.8 billion euros. It hassaid maintaining its BBB (stable) credit rating is its toppriority, effectively limiting its financing options to acapital hike.

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