Tele2 Italy has more than 2.6 million customers, including over 400,000 broadband customers while Tele2 Spain has 550,000 customers, including over 240,000 broadband customers.

The attraction of the deal is high growth in the markets. Broadband penetration in Italy is expected to reach 44% by the end of the year, up from 30% two years ago, and this will be outstripped by the 57% broadband penetration in Spain, up from 33% two years ago.

Vodafone said the deal would deliver the infrastructure and broadband expertise necessary for a competitive broadband offering in two of its key European markets.

It will have to work hard to make the acquisitions pay as both operations are loss-making and have a tiny share of their national broadband markets. Tele2 Italy has a 4% market share and lost 6m euros ($8.5m) at the EBITDA level on revenue of 546m euros ($772.8m) in the year December 31, 2006. However, Vodafone said it broke even at the EBITDA level in the six months to June 30, with revenue up 8.5% at 298m euros ($421.8m) driven by a 200% increase in direct access and broadband.

Tele2 Spain has a 3.5% market share 3.5% and reported an EBITDA loss of 21m euros ($29.7m) on revenue of 253m euros ($358m) in the year to December 31, 2006. Revenue was flat in the first six months to June 30 though Vodafone said broadband revenue doubled.

It said the capital expenditure requirements of the two operations is not expected to materially impact its capital intensity ratio in Europe and is expected to be broadly neutral to adjusted earnings per share in the first full year after acquisition, excluding the impact of acquired intangible asset amortization. But including this impact, it will be 1.5% dilutive to adjusted earnings per share in the first full year post acquisition.

Vodafone CEO Arun Sarin said the acquisitions will generate time-to-market benefits in Italy and Spain where low broadband penetration and the market structure make ownership of fixed broadband assets attractive. We have now established a clear route to delivering fixed broadband services in each of our major European markets, he said.

Vodafone plans to increase substantially the operations’ local loop unbundling coverage to major cities, with the remaining nationwide coverage available through resale services. It said integration with its existing operations will lead to cost synergies from the use of existing network operations and infrastructure revenue synergies from cross-selling existing products to the new customer base.