Times of London
Phone giants play numbers game
THE heads of Europe's biggest mobile phone companies must often feel as though they are trapped inside the world's most complex and expensive board game.
With Vodafone now preparing to launch a hostile œ70 billion-plus bid for Germany's Mannesmann, expected to be tabled tomorrow, the stakes of the game have just got even higher. Even Chris Gent, Vodafone's ambitious chief executive, risks losing billions of pounds of his shareholders' money, plus his job, if luck is not on his side.
At least 55 companies are currently playing Europe's mobile phone game, which covers all of the region's 14 major markets. Each of the companies holds a baffling range of minority and majority stakes in an equally baffling range of companies, whose combined turnover is an estimated œ80 billion. Their market value, however, is several hundred times that figure.
The aim is to use tough negotiating tactics, political pressure, and financial firepower (using only paper money, of course) to gain control over as many of the mobile phone companies as possible, in the shortest amount of time.
The game came about mainly because of the UK Government's decision in the 1980s to open up the telecoms industry to competition. This ultimately led to the end of Vodafone and Cellnet's duopoly over the fledgling UK mobile phone market in the mid-1990s with the arrival of One 2 One, then Orange. The entrance of these two upstarts to the market sparked enormous growth, with UK consumers signing up to mobile networks faster than even the most bullish of analysts had hoped for.
Meanwhile, deregulation in the UK had inspired similar political moves in continental Europe. By the mid-1990s, the European mobile phone market was buzzing. However, because few established telecoms companies, such as British Telecom, Deutsche Telekom and France Telecom, had predicted the rate of growth in the mobile industry, their international expansion plans had been weak. To limit investment, and to avoid political battles (most big telecoms companies are still seen as national flagships), most overseas operations were formed as alliances.
Often, no one shareholder had control. Hence both Vodafone and BT ended up with a huge amount of partners through Europe, with ventures such as Germany's D2 and Viag, France's SFR and Spain's Airtel. The partnership between Vodafone and Mannesmann was particularly close, with the two companies both holding stakes in Germany's D2, Italy's Omnitel and France's SRF. However, as Sean Johnstone, a telecoms analyst at SG Securities, says: "If you have a minority stake you don't have influence over a company's technology or strategy.
"You also don't really get any synergies from international roaming agreements. Also, as Vodafone and Mannesmann have demonstrated, you never know how long a partnership is going to last."
Andrew Moffat, an analyst at ABN Amro, believes companies without control over their assets will not be able to capitalise fully on mobile Internet services. These services are likely to allow consumers to order goods and services via their mobile phones.
In a report out last week, he said: "Mannesmann's operations in Germany, Italy and the UK may have different languages, but the products being sold across the e-commerce platform are likely to be similar. Mannesmann can offer potential suppliers the ability to sell products to 21 million subscribers. This is almost double the number of equity controlled subscribers which Vodafone AirTouch can offer."
This fact, coupled with the enormous growth being experienced by the mobile phone industry, has led to the vast multibillion-pound asset swapping going on today, including Vodafone's hostile bid for Mannesmann. The deal-making began earlier this year with the œ8.4 billion sale of Britain's One 2 One to Deutsche Telekom (the previous owners of One 2 One were MediaOne and Cable & Wireless). Then France Telecom paid œ4.8 billion for a 60 per cent stake in Germany's E-Plus, and Mannesmann paid œ22 billion for Britain's Orange. Analysts believe there is plenty of action to come. BT is likely to be the most prolific deal-maker, trying to raise its stake in Germany's Viag (current stake: 45 per cent), France's SFR (21 per cent), and Spain's Airtel (18 per cent). BT is likely to face stiff competition from the other shareholders in these ventures, such as Vivendi, the French conglomerate, and Vodafone. Vodafone's attention, however, is likely to be distracted by its bid for Mannesmann.
After this consolidation, analysts believe, Europe's biggest telecoms companies will start spinning off mobile phone assets. "In a year or two it'll all go the other way and people will start spinning off minority stakes in mobile phone companies," says Mr Johnstone.
"Of course, that wouldn't be possible unless you had control over the companies in the first place."
|
