DJ Telecom Suppliers Find 3G 'Deals' Aren't Firm Contracts
Dow Jones News Service ~ March 15, 2002 ~ 6:39 am EST
By Gren Manuel
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--As if they needed any more bad news, telecom equipment suppliers who trumpeted deals to supply third-generation (3G) mobile phone networks are discovering that such contracts aren't as firm as they might have imagined.
Lucent Technologies Inc's (LU) flagship contract to provide up to $800 million of equipment to Telefonica Moviles SA (TEF)'s unit in Germany is now in question, as are three key deals announced by Ericsson (ERICY).
Nokia Corp (NOK) and Nortel Networks Corp. (NT) are also finding that agreements made in 2000 and 2001 worth hundreds of millions of euros are at risk from competitors offering lower prices.
"You have to remember that some of the agreements were signed a while ago," says Dave Murashige, vice president, strategic marketing at Nortel Networks. " Circumstances have changed for some of the operators and some of the (equipment) providers as well."
When contracts come up for grabs a second time, he said, "I don't think I'd ever tell you that a price would go up."
The problem for equipment suppliers is that although loudly proclaiming " contracts," in 2000 and 2001, a close reading of many of these so-called agreements shows they weren't contracts at all.
Take Lucent's deal with Telefonica Moviles in Germany, announced December 2000. The company statement headlined with..."Potential value worth up to EUR900 million over six years" and described the deal as an "agreement." But it clarifies that it was "subject to the execution of a definitive contract."
Similar wording was used in Ericsson's announcement with Telefonica Moviles in Spain in November 2000 that described its deal as a "contract" that made the company "key supplier" for a EUR40 million initial phase network.
Both of these were thrown into question by Nortel's announcement Tuesday that it had been awarded contract wins estimated at $250 million in Germany and Spain from Telefonica Moviles - which had previously announced it was buying equipment in these countries from Lucent and Ericsson.
Although operators could choose to have multiple suppliers for different parts of the network, Nortel's announcement states clearly that it is supplying the radio access part of the network in Spain - the same equipment that Ericsson says it is supplying in Spain.
Yet even Nortel's deal announced this week isn't set in stone - Nortel's statement describes an "award" that is "subject to the execution of definitive agreements."
Nortel's Murashige said that until equipment is installed "no network is completely solid."
Lucent spokesman John Verdon conceded that the American company hasn't actually sold any 3G equipment under the two-year old pact to Telefonica or its wireless unit, Telefonica Moviles SA (TEM).
Asked about the possibility that Telefonica would in fact decide not to buy any 3G equipment from Lucent at all, Verdon said: "That would be speculation."
A Telefonica Moviles spokesman said that any previous announcements from vendors referred only to pre-selection, whereas the Nortel release was a final agreement.
Lucent's and Nortel's announcement are couched in similar language to more than 70 announcements for 3G equipment supply for Europe in 2000 and 2001.
Ericsson appears also to have lost out on a deal at Germany's E-Plus, controlled by KPN (KPN) of the Netherlands. Ericsson said late April 2000 it was "primary supplier," including supplying all core network equipment.
But last week it was trumped by Nokia, which announced a EUR150 million deal in which it was to be "main supplier" and it would immediately start to deliver the core network equipment earmarked as Ericsson's.
Mats Dahlin, head of Ericsson's European network operations, said that the Swedish equipment maker remains KPN's main supplier, despite the arrival of Nokia as core supplier to E-Plus.
Most upfront about the process of rejigging suppliers is mmO2 PLC (OOM), formerly the mobile arm of BT Group PLC (BTY), where spokesman Richard Poston says it is rethinking all 3G supply deals in an attempt to leverage its buying power.
"We are discussing this with all of our suppliers," Poston said.
This throws open deals signed with Nortel, Nokia and Ericsson as suppliers in the U.K., Germany and the Netherlands respectively.
The deals are critical for equipment suppliers as 3G spending, even though now on a delayed timetable, is the only major new source of revenue in a sector that, according to a Merrill Lynch report early March, has more slack capacity than ever before.
Michael Schroder, telecom analyst with Opstock Investment Banking in Helsinki said operators signed up lots of suppliers to reduce risk in 2000 and 2001, when it was untested technology and they were racing to be first in the market.
Now the technology is seen as less risky and they're on slower timetables, he says it's time to trim supplier numbers, concentrate buying power and get better prices and credit terms.
Schroder says that tracking contracts that have fallen by the wayside is almost impossible.
"Nobody will make an announcement that they've lost a contract," he says.
Company Web sites: ercisson.com; lucent.com; http:// www.nokia.com; nortel.com
-By Gren Manuel, Dow Jones Newswires; 44 20 7842 9279; gren.manuel@ dowjones.com
(Mark Beresford in Madrid, Jack Grone in London and Chris Reiter in Hanover contributed to this report.)
(END) DOW JONES NEWS 03-15-02
06:39 AM |
