SNRA--key article here (From Forbes) for people to study and think through. I am fired up about it as a good investment going forward.
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The Sonera Also Rises
By Richard C. Morais
Who has the most advanced telephone company in Europe? Not the Germans, not the Brits, but the Finns. So says Morgan Stanley Dean Witter's 361-page study of Europe's multimedia future. Sonera Corp., the former state-owned telephone company, has revenues of $2 billion and a recent ADS listing on Nasdaq. Per Otto Hyland, a managing director of Credit Suisse First Boston in London, calls Sonera "an undiscovered jewel." Sonera is still 58% owned by the Finnish government but acts very much like a venture-capital-funded outfit in Silicon Valley. It has 65% of the mobile telecom market in Finland, where 60% of the population, the highest percentage in the world, use cellular phones. It handles 40% of the country's Internet subscriptions. The result is last year 65% of Sonera's revenues, and more of its earnings stream, came from mobile, new media and other specialized telecom services. The Finnish affinity for cell phones helped Nokia create a $140 billion market value. It's making Sonera into a growth company, too. Revenues for the first half of 1999 were up 18% to $915 million, on which the company enjoyed a net margin of 19%. Sonera's market cap, $29 billion. Sonera's services offer a glimpse of the future. Pagers have all but disappeared in Finland. Why? In 1995 Sonera offered mobile customers up to 160 characters packaged as a Short Message Service. Today Finnish schoolkids use SMS to pass each other notes in class. Sonera processed 190 million mobile messages in the first half of 1999, up 275% from the previous year. Behind SMS is a larger corporate strategy: bypass the commodities side of the telephone battle. "We want to be in the value-added services that will be a larger part of mobile offerings in the future," says Kaj-Erik Relander, Sonera's executive vice president and chief financial officer. "That's where the margins will be." A Finn can pick out songs on the jukebox in a beer joint, punch a code into his mobile phone, hear the music and see the $1.75 jukebox charge on his next phone bill. He can also charge a Pepsi or a car wash. Security concerns led the company to restrict this wireless commerce to small transactions. No longer. Sonera was the first operator in the world to launch services for the wireless application protocol phones. The new platform allows for secure wireless e-commerce, and the first commercial applications early next year will make it relatively safe for Finns to bank, trade shares, surf the Net and send sensitive e-mail directly via the WAP mobile phone. The commercial ramifications are stunning. A Sonera customer can soon enter the giant Stockmann bookstore in Helsinki, browse until he's found a book he wants to buy, then use his mobile phone to buy the book over the Internet at a lower price while still standing in the Stockmann store. Sonera's overseas forays are whetting the curiosity of Europe's investment bankers. Sonera is investing $930 million in the VoiceStream, Omnipoint and Aerial merger. If it goes through, the new outfit with 1.5 million subscribers will be the U.S.' largest mobile operator using GSM, the dominant technology overseas, and has the potential to reach 200 million Americans. In Lithuania, Latvia, Estonia, Hungary and Russia, Sonera has picked up stakes in mobile companies cheaply. But the Finns really struck gold in Turkey. Sonera owns 41% of Turkcell, a fast-growing mobile operator with 4 million subscribers. Turkcell got through the recent earthquake without major disruption, and the company is furiously building operations in Azerbaijan, Georgia and Kazakhstan. Turkcell will go public early next year. Sonera paid $116 million for its 41% stake; J.P. Morgan Securities values the holding at $7.5 billion.
Sonera's management intends to leverage its international portfolio and service know-how into a seat at the big boys' table. "We want to be the smart partner of choice for those companies with distribution capacity," says Relander. It will probably help if Sonera's soft-spoken president, Aulis Salin, can convince Finnish politicians to reduce the state's holding in the company, as an AT&T or BT is unlikely to be interested until politics is out of the picture. The prime minister has publicly stated he wants to reduce the state's share of Sonera to zero. In the process, he'd probably make his countrymen wealthier. >>
forbes.com |
