Spain's Telefonica signs a historic deal for a majority share in CeskyTelecom

One of the biggest privatisation deals since the fall of communism has been signed and sealed. The Spanish Telefonica now owns a 51 percent stake in Cesky Telecom - the Czech fixed line operator which also owns the Czech Republic's leading mobile operator Eurotel. In an open tender, where the deciding criterion was the price, Telefonica beat Swisscom and Belgacom, with an offer of over 3.5 billion dollars. One analyst described the deal, at a good 25 percent higher than expected, as nothing less than a "bomb". David Vaughan was at the signing ceremony at Prague's Lichtenstein Palace on Tuesday morning.

There were smiles all round - even from the Czech Prime Minister, Stanislav Gross, who despite the continuing government crisis, was there in person to thank Telefonica for their investment. The smiles were very much in place, because Telefonica, which is one of the world's major players, has gained a firm foothold in the Central European market, and the Czech government can breathe a massive sigh of relief. Not only have the state coffers been boosted by far more than had been expected, but also the beleaguered Czech government managed to survive long enough to see the deal on paper. Prime Minister Gross couldn't resist a dig at his former political allies in the government, saying that he wished they could have been such reliable partners as Telefonica.

The president of Telefonica, Cesar Alierta Izuel, was equally full of praise. He said that Telefonica had a lot of experience of privatization deals, and that in this case it couldn't have been more transparent or more smooth. It's interesting as well that this is the first really big Spanish investment in the Czech Republic since the fall of communism.

So the deal is signed. What happens next?

From now on Telefonica has executive power to make all strategic decisions in Cesky Telecom. Under the deal it will now have to come up with an offer for the remaining 49 percent of stock. This could cost another 3.5 billion dollars, so this will put Telefonica's balance sheet under quite a lot of pressure. Obviously they think it's worth while.

Do analysts agree?

By and large yes. Telefonica is a renowned firm. It has great experience in marketing, launching new products, and with so-called third generation mobile phone technology. It's also fully embraced Telecom's own strategy of trying to expand further into the region - including Poland, Hungary and Slovakia. But I suppose if there is one shadow over the whole deal, the Czech market itself is seen by many as getting close to saturation point - with over 100 percent mobile penetration, for example, so Telefonica will have to do some pretty active marketing.

What will the Czech government do with this huge windfall of over 80 billion crowns?

If the current government survives in its one form or another, it will put most of the money into the transport infrastructure, some will also go into improving the environment, and a smaller percentage into housing development. The opposition Civic Democrats don't like this and would like to see the money go into pension reform.

So the deal is signed and sealed. Is that it?

Not quite. It does still have to be approved by the European Commission and the Czech anti-monopolies office.