Pulling the handbrake in 3G: Orange Shackled by FT
Alcatel's 3G customer list, however, is short. It has signed deals with Orange in France and Sweden, with France's number two operator SFR and with Portugal Telecom TMN. And that's it.
12.06.02
As expected, increasingly successful mobile group Orange SA has had a corporate ball and chain clamped to its next-generation network rollout limb as its parent, France Telecom SA, finds ways to claw itself out of a financial hole.
The upshot of FT's plans to reduce its debt and get some help from the ever obliging French government -- help that will be subject to a "tough examination," according to a European Commission spokesman quoted by Reuters -- is that Orange has been told to spend less and do the bare minimum in 3G land. Not that it hasn't found a way of spinning this into what sounds like fantastic news, though the company's news release also notes that CEO Jean-Francois Pontal will "retire" next spring. His deputy Graham Howe looks set to replace him.
The money markets liked the restructuring news, as France Telecom's share price increased by 17 percent yesterday, after it outlined its plans, and continued upwards today by 11 percent to nearly EUR21. Orange's share price was also climbing, rising 20 points on Thursday and by 17.5 points Friday on the London Stock Exchange to finish the day at £4.825 (US$7.66).
So what does the future -- so often referred to as "bright" by the corporate chanters at Orange -- hold for the mobile group? Well, between 1,000 and 2,000 jobs will be lost, the majority in Denmark and the U.K. In addition, the group's 3G program is being slowed down. Although there are still plans to kickstart UMTS services in the U.K. in 2003, the rollout in other markets will be delayed. Sweden has had its 3G plans "put on ice," Howe said in a conference call. There's every chance that might be permafrost he is referring to (winters are long up there), particularly following Orange's unsuccessful application to be granted more time for its Swedish 3G plans.This all amounts to capex savings in the next three years of EUR3 billion. With FT looking for a total of between EUR5 billion and EUR7 billion in savings over three years from Orange, this will require serious belt-tightening in terms of reduced operational expenditures from the mobile group, savings it probably has not yet had time to consider.
Aside from concerns that these financial shackles might hinder Orange's growth, especially when it seemed to be doing so well, there's a knock-on to the vendors here in terms of delayed revenues for projects outside the U.K. and even loss of revenues if the Swedish 3G plan is locked in the freezer.
Nokia Corp. is a major supplier across the group but is fortunate in that most of its exposure is in the U.K. (sole supplier), which is not being delayed, and in France, where it shares the contract with Alcatel SA. The number of UMTS deals it has in total means the affect of the French delay will be significantly cushioned. Analysts at Lehman Brothers who follow Nokia see "little negative impact" on the Finnish firm.
Alcatel's situation is a little different. It is a 3G minnow, though trying hard, as we saw in the latest Wireless Oracle, Alcatel Gets Real in Europe, and Alcatel Centers on Cost. The impact on the French vendor as a whole is minimal, as the company's revenues are so diversified in terms of product range and geography. And even though France is a major market (France Telecom's plans will affect Alcatel's fixed product revenues, too), the company's share price dipped but has recovered to roughly the same level since the announcement.
What could be of concern is the impact on its wireless infrastructure business, which is small, at $3 billion a year at present, but growing and profitable. Most of that business is from small but healthy GSM contracts, but the firm wants more action in the UMTS world.
Alcatel's 3G customer list, however, is short. It has signed deals with Orange in France and Sweden, with France's number two operator SFR and with Portugal Telecom TMN. And that's it.
"The biggest risk to Alcatel in our view remains Orange's Swedish business," say Lehman's wireless analysts. "Alcatel has 100 percent of this contract, which represents one of its few WCDMA contract wins. The postponement of this reduces Alcatel's opportunity to demonstrate its WCDMA capability. If cancelled, it would raise further questions over Alcatel's ability to sustain its position in the mobile infrastructure space."
While that final assessment may be harsh, this week's announcements by France Telecom could turn out to have the greatest impact on the 3G aspirations of its fellow French firm.
- Ray Le Maistre, European Editor, Unstrung
<http://www.unstrung.com> |
