logo image

Financial Times World Telecommunications Essay

Once the dust settles over war with Iraq, the EU’s internecine squabbling may prove little more divisive than its fractious telecoms policies. Even now, with most of Europe’s largest mobile operators liberally rewriting their valuations, individual governments are bailing out former state monopolies-beginning last year with a �9b tranche to France Telecom1-and further distorting the markets.

Convinced in 1999 of 3G’s ability to leapfrog America’s success with e-commerce-without the unpleasantries of unbundling broadband3-the Europeans “would become AT&T, AOL and Yahoo! rolled into one-and they’d ride in millions of pockets and purses all day long. … Vodafone’s Chris Gent started it. Deutsche Telekom’s Ron Sommer followed, with France Telecom’s Michel Bon right behind. The goal was to win a place in Europe’s mobile Internet, and the strategy appeared disarmingly simple: Spend, spend, spend.”

This profligate approach inflated the telecoms’ share price, which they leveraged to eat up other companies and to protect themselves from getting gobbled up. When all was said and done, numerous operators had paid too much per subscriber5 while ignoring alternative technologies as well as the risk of their spending sprees.6 Conventional wisdom to the contrary,7 the system rewarded incompetence and sent more cautious operators to their demise.

Vodafone-the world’s leading

Need essay sample on "Financial Times World Telecommunications"? We will write a custom essay sample specifically for you for only $ 13.90/page

stand-alone telecom (formed by the merger of two independents that started as cellular operators when analog wireless was new)-plotted a somewhat careful course, 9 whereas former monopolists like Deutsche Telekom (the hero of this story) were encouraged in their rush to 3G by European governments still holding majority stakes.10 With the wave of a hand, 3G spectrum auctions would transfer the taxpayers’ investment in the “liberalized” incumbents into the governments’ coffers; but only some 10% of roughly $150b in licensing fees has made the journey so far.

With Vodafone fast approaching pan-European status,12 “most of the [other carriers] should just stay home, as there is room for only three big players, says analyst Jason Chapman at Gartner Research.”13 A new report from Probe Research-another of numerous firms stepping up to the plate since Jack Grubman left the field14-captured headlines last month with warnings of an even bigger telecoms crisis in the offing, “as rich industrialized countries grapple with ballooning debt, fierce price competition and aging populations…. The demographic, deflation and debt trends require very serious re-thinking…”

This is old news, of course. When the TMT bubble burst, “operators were left with crushing debt and more hardware than you could shake a stick at. Investment dropped nearly two thirds in two years. Everyone expected the next step to be a massive shakeout… but nearly two years later it hasn’t come. ‘The industry is stuck in the spring of 2001,’ says Tero Kuittinen, adviser to Opstock Investment Bank of Helsinki, who considers the current state of affairs ‘incomprehensible’.

As though awakening last Thursday with a sudden premonition that “some European telcos will go bankrupt, and only a fraction of the networks that have been planned will be completed,”17 Deutsche Telekom announced that its wireless group, T-Mobile International, plans a networking alliance with fellow incumbents Telefonica Moviles, the mobile subsidiary of Spanish telecommunications group Telefonica, and Telecom Italia-Mobile (TIM), the corresponding subsidiary of Telecom Italia.18 With the emphasis now on 2.5G, the three second-tier operators are offering both voice and mobile Internet services to a combined customer base of 162 million across 25 countries. Each carrier leads in its domestic market, and together they work in Latin America, the US, and Europe19-where the alliance will address the potential regulation of roaming charges.

In Wall Street parlance, this is a major restructuring story. All told, TIM, T-Mobile and Telefonica Moviles wrote down 34b (~$36.b) in good will, asset valuation and actual losses for 2002.21 Rebranded with the introduction of GPRS (the next battleground) last year, T-Mobile International emerged in the 4th quarter as Deutsche Telekom’s driving force .22 The group is adding subscribers at a brisk pace in Britain and especially the United States; but analysts expected even better results23 and the European mobile sector is expected to “lose some of its shine in 2003,” in light of regulatory risk, handset churn, consolidation and increased capex into 3G roll-out.24

Germany-unique to the European Union-has not scheduled a reduction in mobile termination rates, while other national incumbents face losing as much as 50% of this revenue. This disparity goes to the heart of harmonizing telecom regulations, given that “operators in different countries will be exposed to asymmetrical regulatory liability,” according to a January report from Credit Suisse First Boston.

Since the NRAs have so far defended their powers of discretion, interpretation and enforcement of the EU directives, an individual regulator’s stance could have vastly different effects on that national market’s mobile (and, for that matter, fixed) economics. Beyond regulated tariffs, the NRAs’ policy could affect such salient issues as spectrum trading (states will probably have the right to opt in or out), 3G roll-out requirements and ultimately the pace of consolidation.

Some of the national differences were already apparent from the way 3G licenses were awarded and existing roll-out conditions further testify to potentially significant variations in necessary 3G capex outlays, especially in the early stages when operators seem to lack commercial incentives to invest in these services. Hence, there is much focus on probably unavoidable 3G capex spend in Germany whereas France, which in theory has even more stringent requirements, is universally assumed to relax the strings to enable FT/Orange to deliver on their restructuring and capex cut commitments.

All the same, Deutsche Telekom’s share price has declined by 20% since the first of the year,35 when it still traded at a premium,FN and Ricke’s approval ratings dropped 10 points, to -5, over the past month, according to a poll of the German public-apparently accustomed to grading prominent business managers and reportedly disappointed with the company’s “poor figures”36; one wonders, though, if Ricke’s unpopularity doesn’t reflect a recent 75% cut in Deutsche Telekom’s Bonn office staff37 and a program to cut the company’s headcount by 10,000/year until 2005.38

Ricke-like many of his counterparts-is selling “non-core” assets for a song, more often than not to private-equity (or buy-out) firms-like Apax Partners and Eurazeo, last seen acquiring cable stations39 and enormous chunks of Eutelsat.40 With 4.4b of disposals under the bridge, as it were, Deutsche Telekom anticipates another 1.8b worth of divestitures by the end of this year, 41 including the sale of its phone-book division DeTeMedien, which could bring in as much as Ricke’s objective: to reduce Deutsche Telekom’s debt load to three times EBITDA, or some 6b in projected free cash flow, by the end of this year.

Toward that end, internal DT documents unearthed last month set ambitious targets for T-Mobile (Deutsche Telekom’s growth engine) of market leadership (and 20% of all revenues43) in data services44-to compensate for tough competition on voice tariffs45-in Europe, where “data seems to be off the regulatory agenda for now due largely to its small size and nascent state.” While the movement toward data services is clearly discernible, [however,] it is not a market-dominating force. Cellular operators today receive a disproportionate amount of revenue from voice services, complicating their network planning operations. While they must ensure that their networks will be able to handle accelerated demand for more-sophisticated data services, at the same time the networks have to be optimized for voice traffic.

Can’t wait to take that assignment burden offyour shoulders?

Let us know what it is and we will show you how it can be done!
×
Sorry, but copying text is forbidden on this website. If you need this or any other sample, please register

Already on Businessays? Login here

No, thanks. I prefer suffering on my own
Sorry, but copying text is forbidden on this website. If you need this or any other sample register now and get a free access to all papers, carefully proofread and edited by our experts.
Sign in / Sign up
No, thanks. I prefer suffering on my own
Not quite the topic you need?
We would be happy to write it
Join and witness the magic
Service Open At All Times
|
Complete Buyer Protection
|
Plagiarism-Free Writing

Emily from Businessays

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/chNgQy

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy