Bidding War for European Wireless Licenses Will Have Huge Impact on Debt Underwriters.....
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<<Bidding War for European Wireless Licenses Will Have Huge Impact on Debt Underwriters: Massive need for capital, a la Deutsche Telekom, will crown new debt kingpins
O Leary, Christopher
The Investment Dealers' Digest : IDD (New York) Jul 3, 2000
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A multi-national bidding war that will determine by year's end which companies will own the European mobile telecommunications market, could reinvigorate the debt- capital markets with billions of dollars in new deals, and may separate the serious Street players in European debt markets from the half-hearted.
Germany's auction of Universal Mobile Telecommunications Standard (UMTS) licenses, set to start July 31, will ignite a half-year's worth of auctions throughout Western Europe. The auctions will force any would-be telecom powerhouse in Europe to spend tens of billions of dollars for the right to offer mobile-phone and Internet service in countries ranging from Portugal to Poland.
And all contenders in both European high-grade and high-yield corporate bonds, including Deutsche Bank, Goldman Sachs, Morgan Stanley Dean Witter and UBS Warburg, are angling for position, trying to win the lucrative deal mandates from issuers that are willing to sink billions into debt to secure these licenses.
UMTS licenses are an equivalent to bandwidth channels for television or radio broadcast. In order to offer cellular phone and other wireless services to a particular nation, players need to acquire at least one and perhaps more licenses, each of which has a substantial price tag. The situation is forcing upstart telecom players to form coalitions, as well as tap the bond markets in unprecedented volumes.
Last week's enormous Deutsche Telekom AG deal, which at $14.5 billion was the largest corporate bond ever issued, demonstrates the type of capital needed for an issuer to get a foothold in the European wireless market. Market players said Deutsche Telekom needs every dime of capital raised in that deal, as it may have to spend more than $23 billion in the next six months if it wins all the auctions in which it plans to bid.
The spectacle of that deal, and the boost in league-table ranking and underwriter fees it gave lead managers Deutsche Bank, Morgan Stanley and Goldman, has all would-be Street players in European debt gambling on which issuers look to be the winners in the wave of upcoming auctions.
"The numbers for these auctions are staggering-they're in the billions," said one head of high-yield. "This process is going to inspire an incredible amount of supply, as the one obvious place these issuers will turn for funding is the debt markets."
Because many of the bidders, which include Deutsche Telekom, Vodafone Plc, WorldCom Inc., British Telecommunications Plc, and Jazztel Plc, are going to require large and hopefully tightly-priced packages of funding, it should be a test by fire of how well- prepared the European desks of Wall Street shops are, he added.
"You're going to have to make $4 billion or $5 billion commitments" to these issuers, the pro said. "There are maybe five or six firms than can do that now." And shops with European legacies, such as Deutsche and UBS, may have the upper hand when it comes to winning contracts with issuers that speak the same language.
A busy calendar
The German UMTS auction has already winnowed European wireless companies. Out of the 12 telecom players that originally planned to bid for the licenses, only eight remained as of last week.
U.S.-based WorldCom bailed out of the auction recently, furthering the market's belief that European players will snatch up most of the licenses available. The domestic players have an advantage, analysts said, because they already have an established customer base and can recoup costs easier than a U.S. firm that must start from scratch.
The German licenses, which will range from four to six available for bid, will cost winning bidders at least (10 billion ($9.4 billion) each. Players still in the race include a consortium of Spain's Telefonica ADR and Finland's Sonera Corp., the U.K.'s Vodafone and the Dutch KPN Telecom-owned E-Plus Inc. But the two companies expected to be the big winners are Germany's top mobile phone operators, Deutsche Telekom and Mannesmann Mobilfunk SA.
And once that auction round has been cleared, telecom players must immediately gear up for another round set for the fall. By November, Austria and Sweden plan to auction up to six UMTS licenses, and Switzerland plans to auction four licenses at $8 billion a pop.
Other countries set to go later this year include Slovenia, the Czech Republic, Belgium, Poland, France and Portugal. In each case, the price tag for a license looks to be in the $8 billion to $10 billion range.
An expensive precedent has been set by the first UMTS auction, which took place in early May in the U.K. The auction yielded GBP22.5 billion ($34.02 billion) for the British government and awarded five licenses to TeleSystem International Wireless Inc., Vodafone, British Telecom, Orange Plc and the Deutsche Telekom-owned One 2 One Plc.>>
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