Forrester's Nordan on Vodafone-Mannesmann, Telecoms: Comment
By Adri den Broeder
Amsterdam, Feb. 7 (Bloomberg) -- Matthew Nordan, an analyst
at Forrester Research Inc.'s European headquarters in Amsterdam,
speaks about Vodafone AirTouch Plc's $192 billion takeover of
Mannesmann AG and the consequences for the European
telecommunications and Internet industries.
What's next after Vodafone-Mannesmann?
``It's likely you'll see British Telecom try to extend its
stake not only in Europe but also outside. We expect them to go
after Telefonica, as has been speculated. We expect Deutsche
Telekom to go north, and bid for someone in the U.K., either with
an enhanced bid for a 3G license or also make a play for Cable &
Wireless.
``I also think you'll start to see companies from South
America or Japan try to make European plays. The news is now that
NTT DoCoMo is likely to make a bid for Orange in the U.K., which
wouldn't surprise me. They've been trying to export their mobile
internet technology for some time with no success. They can buy
their way into a new market.'
Who's going to win the battle for Orange Plc?
``We see five companies going after Orange, in descending
order of likelihood to buy: France Telecom is the most likely
buyer -- they have a partnership with Energis in the U.K. to do
fixed telecoms, so they're likely to spin that into mobile. The
next most likely is KPN, with help from BellSouth Corp., followed
by MCI WorldCom, NTT DoCoMo and Vivendi. Vivendi will make a bid
but they don't have the cash resources to have the highest bid in
the end. They'll more likely go with a consortium for a 3G license
to make their way into the U.K.'
What is the outlook for the Vodafone's agreement with Vivendi SA
to create a new Internet portal for mobile phone and TV customers
in Europe?
``The Vodafone-Vivendi deal looked a lot like hype when it
came out. If you look at the motivation of the two companies, the
both have what they want. Vodafone has Mannesmann nailed down and
Vivendi, by getting the Mannesmann stake in Cegetel, gains a
majority ownership in that French entrant. At this point they both
have what they want and there are no good reasons for them to
cooperate any further. We think that six months from now you'll
see Vodafone trying to extend south into France, competing against
Vivendi and Vivendi you'll see bidding either for Orange or for a
3G license going head to head against Vodafone in the U.K. In that
environment the venture they've proposed to create, a pan-European
Internet portal, just doesn't seem like it can fly.'
Do corporate customers lose out with the Vodafone purchase of
Mannesmann?
``It's likely, particularly on the corporate customer side --
they're the ones who get screwed in any telco deal, be it a merger
or a selloff. As an example, when MCI sold its Internet backbone
to Cable & Wireless, which was required for the WorldCom merger,
it took seven months for customer accounts to transfer and
customer service staff decreased about 7 percent. It's hard to see
how Orange can be spit out and Vodafone and Mannesmann can
consolidate some of their customer service operations without
corporate customers getting a few dings along the way.'
Was Vodafone-Mannesmann a good idea?
``In terms of extending reach across Europe, absolutely. If
you look at the mobile telecoms market, voice or data, margins are
thin and getting thinner, and the only way to combat that is by
high volumes. In that sense it's absolutely the right play. We
think that five years from now there will only be five or six
providers of mobile services in Europe, and likely a smaller
providers of fixed. The question then becomes not `do you merge'
but `who do you merge with.' There are not huge cultural problems
between Vodafone and Mannesmann. They seem big at first but if you
look at a comparative merger, like NTT DoCoMo picking up Orange
for example, the cultural barriers are much larger. In the long
run, it's a good pick for Vodafone.'
What's the biggest challenge to making the merger work?
``I think the key is not in getting the companies together
and getting a consolidated balance sheet, it's in getting
synergies out of the operations. If you look in the past how
European mobile operators have launched operations, they have
launched each as a standalone business. They've had to do that
because markets are so different, local everything is required.
The lynchpin that will let them find new synergies will be the
Internet, which can be done across boundaries. They can build
media and portal properties that can be sold across boundaries
without extra overhead. The key isn't just consolidating it's
about margins.' |
