European Phone Companies Playing a Waiting Game: Mark Gilbert
--From AOL.-- Cooters
London, Dec. 5 (Bloomberg) -- If you're a European telecommunication company building a global business, why wouldn't you compete for mobile phone permits in key markets?
Deutsche Telekom AG decided last month not to bid for a French license, saying it doesn't have customers or a network in Europe's second-biggest country. The move followed decisions by the German company not to bid in Switzerland, one of the most profitable mobile phone markets, or in Italy, where mobile phones outnumber traditional phones. Meantime, British Telecommunications Plc also opted out of the Italian auction.
Maybe the big phone companies figure they'll end up buying each other anyway. The costs of building mobile phone networks and keeping up with advances in wireless technology may dictate that ``buy or be bought'' becomes the strategy of choice. If you covet a wireless permit, it makes sense to wait a bit and buy not only the permit, but the competitor as well.
There are already some concrete signs that more consolidation is on the way in the telecom industry. NTT DoCoMo Inc., Japan's largest mobile phone company, said last week it would pay $9.8 billion for 16 percent of AT&T Wireless Group. The U.S. company could use the experience DoCoMo gained in getting 15 million Japanese phone users onto the Internet, in return for promoting the Japanese company's technology as the standard for a new set of high-speed phone services.
Great for Bankers
And DDI Corp., Japan's second-largest mobile phone operator, said it is in talks with overseas companies about potential alliances. While the company declined to name names, the Jiji Press news service pointed the finger at Vodafone Group Plc.
The prospect of a wave of mergers and acquisitions in an industry that's spending billions on unproven customer demand for mobile Internet services is great for investment bankers and their bonuses.
It may prove less enthralling for those investors who've funded this adventure so far by buying either the stocks or bonds of the telecommunications companies, particularly in Europe.
Going forward, the obvious way for companies to fill in those geographical gaps in mobile phone coverage is to court rivals that did secure a license. That in turn could be the precursor to fuller, more meaningful relationships -- if you're building so- called Universal Mobile Telecommunications Systems networks, you should be able to squeeze lower prices and better financing arrangements out of equipment suppliers as you buy more gear.
Yesterday's performance by Telenor AS is another reminder of the financial pressure phone companies will find themselves under next year. Norway's former telephone monopoly sold shares for about $1.7 billion, about a third less than it was hoping for last week. It got the shares away by selling a 21 percent stake at the bottom of its proposed range of 42 kroner to 46 kroner. On its stock market debut today, the stock dropped as low as 39.5 kroner.
Preparing for Struggle
Coming on the heels of similarly disappointing news on equity sales either planned or completed by Telefonica SA, France Telecom SA and Royal KPN NV, it's clear that companies who hoped to slim down their debt burdens by offloading shares are in for a struggle next year -- a struggle that may accelerate the biological imperative to seek partners to share the burden.
(Deutsche Telekom's reluctance to buy more licenses may have more than a little to do with its share price. Yesterday's closing value of 35.98 is close to the price at which the German company may have to abandon its planned purchase of VoiceStream Wireless Corp. The U.S. company can walk away from the offer, which valued it at almost $60 billion when first made in July, if Deutsche Telekom stock falls below 33 euros for seven days within the 15- day period prior to completion.)
Europe's big phone companies are still in the early stages of their evolution from national, state-controlled monopoly service providers. They've already been through one significant mutation, marked by Vodafone's purchase of Mannesmann and Olivetti SpA's bid for Telecom Italia SpA, as well as a host of smaller takeovers and mergers.
Just as the banking industry has decided big is beautiful and biggest is best, phone companies may find themselves at the mercy of the corporate equivalent of uncontrollable hormonal urges in coming years.
Dec/05/2000 5:35 ET |
