From Raging Bull Ciena Board
ragingbull.altavista.com
By: tomcat08 $$$$
Reply To: 9902 by hjekel $$$$
Wednesday, 27 Sep 2000 at 6:14 PM EDT
Post # of 9915
Invesco wary of 3G auction fallout
Fund manager cuts holdings in mobile equipment makers
By Bernard Hickey, FTMarketWatch 9:52:00 AM BST Sep 27, 2000
LONDON (FTMW) – The fund manager at one of the top-performing U.S. telecommunications funds says he’s wary of buying
Europe’s mobile telephone equipment makers because of the heavy costs of third-generation (3G) licences in Europe.
The high spending raises concern that the telecoms operators may be forced to skimp on 3G infrastructure, or depress demand
for handsets by charging high prices to recover the auction outlays, says Brian Hayward, the manager of Invesco’s
Telecommunications Fund [US:ISWCX]
“The auction process has made the market concerned,” Hayward told FTMarketWatch in an interview.
He referred to comments by Ericsson about how high 3G auction prices could damage demand for infrastructure and handsets.
See story
Hayward manages more than $4 billion worth of stocks in the Invesco fund, which has returned 95.5 percent in the year to the end
of August and an average 65.6 percent a year over the last 3 years.
It ranked first out of 10 telecoms funds in the last five years, according to fund analysts Lipper.
Heavy auction costs
Europe’s major wireless and terrestrial telecom companies, including Vodafone [UK:VOD], Deutsche Telekom, [DE:555750] [DT]
Telefonica [TEF], France Telecom [FR:013330] [FTE] and British Telecom [UK:BTA] [BTY], have already paid a total of about 86
billion euros ($75.5 billion) for 3G licences in Germany and Britain. They have raised their debts and are selling off units to fund the
licence spending.
Their share prices have slumped since the auctions.
An Italian auction due to be completed next month is expected to cost about 35 billion euros more.
Nokia holding cut
Invesco has already reduced its holding in Finnish handset and infrastructure maker Nokia [NOK] and is not a big holder in
Ericsson [ERICY].
Concern about the 3G spending was a factor in the big falls in the share prices of Nokia and Ericsson after their mid-year results.
See story on Ericsson’s results. See story on Nokia’s results. See Goldman’s view on pressures on Ericsson’s position.
There is also a danger the telecoms operators will not be able to provide the content to fill their 3G networks once they are built, or
that the capacity will go unused, Hayward said.
Risk of 3G flop
Hayward pointed to the lackluster response to WAP (Wireless Application Protocol) services introduced in Europe over the last
year.
WAP is a less sophisticated way to access the Internet and has not been as successful as many had hoped in its European
launches because of slow download times and relatively sparse content.
“There’s still a risk ahead of us that all that capacity that we will have when the third generation is deployed will go unused,” he
said.
“We may not see the ramp up in services that has everyone so excited about what is happening in Japan.”
The explosive growth in NTT DoCoMo’s [NTDMY] i-mode mobile Internet service in Japan over the last year has helped boost the
European auction prices.
I-mode is now the world’s second-largest Internet Service Provider behind AOL [AOL], with 12 million customers to AOL’s 23
million.
Stick to infrastructure
Hayward said Invesco wanted to take advantage of the rapid growth expected in use of the Internet through wireless and
telecommunications networks.
But Invesco does this by buying telecoms infrastructure plays, in particular those linked to growth in optic-fibre networks and data
storage networks.
It’s top ten stocks are currently dominated by networking and fibre-optic equipment groups like SDL [SDLI], which is merging with
JDS Uniphase [JDSU], Corning [GLW], Nortel [NT] Ciena [CIEN], EMC [EMC] and Juniper Networks.
Most of these investments are U.S.-based, but one European stock Hayward has been watching lately is France’s Alcatel
[FR:013000], which has transformed itself into a telecoms equipment maker.
Invesco has invested relatively less in telecoms operators.
Telekom ‘flowback’
It holds Vodafone and will hold a stake in Deutsche Telekom, although this is linked to the impending swap of Invesco’s
Voicestream shares for Telekom shares. Deutsche Telekom is buying Voicestream as it aims to boost its U.S. wireless
presence, but does not have a substantial terrestrial presence in America.
Hayward said many U.S. fund managers would sell down their Deutsche Telekom stakes once they received the stock.
“A lot of that stock is going to go back to Europe,” he said.
This expected sale of Deutsche Telekom stock back to European institutions is known as “flowback.”
See more information on Invesco Telecommunications fund |
