Telefonica plans to retain European UMTS licences; sees lower FY sales growth
By AFX News Limited , Jul 26 2002
Telefonica SA plans to retain the European UMTS licences owned by its Telefonica Moviles unit, Cinco Dias reported, citing Telefonica chairman Cesar Alierta.
Cinco Dias quoted Alierta in a presentation to analysts as saying that the group plans to keep the licences, despite dismantling its UMTS operations at a cost of 287 mln eur, which includes lay-offs.
Separately, Expansion quoted Alierta as saying that full-year group sales will grow at a "slightly lower" rate than the 8-10 pct forecast he gave in March.
According to Expansion, Telefonica's total investments will fall by 30 pct to 5 bln eur this year.
Late Wednesday, Telefonica said it has decided to pull the plug on its UMTS business in Germany, Switzerland, Austria and Italy, writing down around 4.8 bln eur for its investments.
The third-generation wireless network would generate losses of 1.802 bln eur at the operating level and 2.374 bln at the net level in 2002-2005 were it not dismantled now, Alierta said.
Telefonica has scrapped all its plans for inorganic growth except for the recent acquisition of 65 pct of Mexican mobile operator Pegaso PCS, he noted.
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UK telecom cos say 3G roll-out plan on track, unaffected by Moviles action
By AFX News Limited , Jul 26 2002
Four of the major telecom companies in the UK, including Vodafone Group PLC and mmO2 PLC, assured their 3G roll-out projects are on track with their timetable and are not discouraged by Telefonia Moviles SA's decision to drop its 3G business in Europe.
"Nothing is changed in our business plan for 3G," a spokeswoman at Vodafone said.
The company's objectives are "quite clear,", she said, adding: "3G is an important element of the group's strategy to further enhance its voice and data revenues."
Over the next 12-18 months, Vodafone hopes to open service 3G networks in its major markets, with the UK service expected to be ready in the second half of the year.
mm02 is unperturbed by Moviles's action, saying its 3G plans remain on course.
"Our own 3G roll-out plans are still on track for launch in the UK and Germany in the middle of next year," said a spokesman at mm02.
"As our last KPI (key performance indicator) figures showed, we are winning business off e-plus as well as off the two incumbents T-Mobile and Vodafone, especially in the contract area, so we are bucking the trend which is flat," he said.
Moviles, together with its partners in Group 3G, had decided to abandon the Quam venture in Germany, as well as shelving its UMTS projects in Switzerland, Austria and Italy.
T-Mobile assured that it is not about to "emulate" the Spanish operator's action.
"We're fully committed to the whole thing. We're banking on 3G to take the whole mobile phone industry to the next phase (of development)," he said.
The group's 3G network in the UK is to be functional "at some point next year," he said.
Hutchison 3G UK Ltd, which won the largest block of the spectrum auctioned in Britain two years ago, is proceeding with the UK launch in the fourth quarter of this year.
The troubles of the global telecom sector failed to discourage the group, which is owned jointly by Hong Kong's Hutchison Whampoa Ltd, Japan's NTT Docomo and KPN Mobile.
"We're still on track (with our schedule). There's no change at all," a spokeswoman at Hutchison 3G said.
The group, she said, has sufficient funds to back its 3G business, having obtained 3.2 bln stg in syndicated loans recently.
Apart from the UK, the company also holds 3G licences in Australia, Austria, Denmark, Hong Kong, Ireland, Israel, Italy, and Sweden.
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Moviles' German 3G exit is likely catalyst for further consolidation
By AFX News Limited , Jul 26 2002
Telefonica Moviles SA's decision to halt its European 3G investments outside Spain is expected to serve as the catalyst for further consolidation in the sector in Germany, analysts said.
Both the financial community's positive response to the Moviles move and the fact that its German venture Quam had only a tiny projected market share have increased the attractiveness of the pullout or tie-up option for the country's remaining small 3G licence holders, they said.
In any case, the factors behind the Moviles decision serve to highlight the problems faced by the remaining mobile players in Europe's largest market to recoup their huge investments in third generation licences and technology.
Quam's probable complete exit will cut the number of 3G players in Germany to five from six, but given Quam's size it was never going to be a major force and threaten the other players, analysts said.
"(There are) no material short to medium-term changes to German mobile market forecasts given how little market share we had allowed for Quam (2.5 pct by 2010)," Goldman Sachs said in a note to clients.
Therefore Quam's exit will be of little comfort to these players who still face the Herculean task of getting 3G services to pay off their huge investments in the licences and the roll-out of the networks, analysts said.
The six players together paid 51 bln eur for the licences alone, and are expected to invest a similar amount in the necessary technology, analysts said.
Getting a return on their investments will be particularly hard for the smaller players, since market leaders Deutsche Telekom AG and Vodafone Group PLC between them hold 80 pct.
The three remaining players are MobilCom AG, soon to be owned 100 pct by Orange SA which in turn is 87 pct owned by France Telecom; E-Plus, 100 pct owned by KPN Mobile which in turn is 85 pct owned by Royal KPN NV; and mmo2's 100 pct owned o2, formerly known as Viag Interkom.
The end of Quam is likely, then, to spark further rationalisation in the German mobile market, either through tie-ups or through further exits, analysts said.
"Given the likely need for further consolidation in Germany, the next steps to completely rationalize the German mobile market structure now become easier," Goldman Sachs analyst James Golob said in a note to clients.
"The next likely player to quit is o2, whose British parent (mmo2) has already indicated that it will cut lines unless the German subsidiary reaches breakeven by early next year," Merck Finck analyst Joachim Koller said.
Moreover, the overwhelmingly positive reaction among analysts to Moviles' move -- in spite of its decision to take a huge 4.9 bln eur extraordinary provision -- may also make similar moves by other companies, with similarly disappointing share prices and dire debt positions, more attractive.
"The decision transforms the profit and cash flow outlook (for Moviles) ... (and) if it materialises would make the stock significantly more attractive and we are putting our recommendation under review ahead of a likely positive move," Dresdner Kleinwort Wasserstein said.
DrKW calculates that the move will improve Moviles' EBITDA by around 400 mln eur this year and by around 0.5 bln next year, and that capital expenditure could be as much as 0.5 bln lower in both years.
Annual free cash flow could therefore increase to around 1.5 bln from the bank's current estimate of around 0.5 bln.
It added, though, that that "there is a possibility that they will continue to spend some money on meeting rollout commitments so as not to lose the (UMTS) licence."
The move will also allow Moviles to pay a cash dividend from 2003.
The factors that drove Moviles to pull the plug in Germany apply to all the other players, principally the scale of cash flow needed to finance their business plans and the lack of convincing signs that customers will be prepared to pay for the services when they arrive.
"(Compared) to what had been anticipated at the time of the 3G auctions in Germany in Autumn 2000, the timetable for the launch of UMTS services has been postponed across Europe and there has been widespread scaling back of expectations for the likely contribution to ARPUs that such services would make," Goldman's Golob said.
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Kpn Sees 'Small' Delay to UMTS Rollout As Group 3G Drops Network Sharing Deal
By AFX News Limited , Jul 26 2002
Royal KPN NV said it expects a "small" delay to the roll-out of its UMTS mobile network in Germany after Group 3G partners Telefonica Moviles SA and Sonera Corp announced plans to halt investment and operations in the market.
The move annulled their agreement to share network infrastructure with KPN's E-Plus.
"We will not as far as we know build up our network together," said KPN spokesman Bram Oudshoorn.
He acknowledged that KPN will not realize an estimated 500 mln eur in cost savings projected from the cooperation with Group 3G.
"On the other hand prices for developing networks have come down. It will be cheaper then we thought at first.
"The other element to it is there is now one competitor less, which is of course an advantage," he said.
He could not say how long of a delay is expected as a result of the news from Group 3G. KPN had previously forecast starting 3G services in late 2003.
Oudshoorn reiterated E-Plus' intention to participate in any further consolidation in the German mobile market. He would not say if the company plans to seek a network sharing agreement with another German operator.
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