A Week in Wireless 78
15-NOV-2002
It is not unusual for the term 'impossible job' to be attached to jobs that aren't really impossible at all. Not that the CEO positions at WorldCom and Deutsche Telekom, so described in recent weeks, aren't incredibly tough. There's no arguing that Michael Capellas, the former Compaq chief reported to be taking the WorldCom hot seat, will have the most daunting 'to do' list in telecoms, if not in business full stop. Figuring out exactly how much money WorldCom never actually earned in the bad old days of false accounting will be top of the agenda, followed closely by re-engaging a demoralised workforce and stemming an ongoing client exodus. And his remuneration package will be modest compared to that of his notorious predecessor: free use of the company jet and enormous loans are certainly right out.
Then there's the new Deutsche Telekom CEO Kai-Uwe Ricke, whose appointment was confirmed yesterday. The key question at Ricke's interview will have been how he proposed to tackle E64bn of debt without selling off DT's prize mobile asset in the US, the former VoiceStream. You have to assume that he came up with a convincing enough answer, but the booking of a E20bn write-down in the same week as Ricke's elevation to the top job underlined that this is a company in a bad way. So it's best of luck to Messrs Ricke and Capellas. Both men will no doubt be confident that their tasks, while formidable, are by no means impossible and they're probably right. Their chances of success are at the very least calculable.
Any suffering at Deutsche Telekom caused by the Q3 figures will have been exaggerated by favourable results elsewhere. Telefonica shrugged off falling sales to up Q3 profits by 22% to E538m; KPN recorded its first quarterly profit for two years; and the markets responded warmly to Vodafone's interim results. With Japanese interests included in group reports for the first time, Vodafone's revenues were bound to increase, but a rise of 67% was impressive nonetheless. Financial reporting is a thoroughly arcane business, of course, and there seemed plenty of room for interpretation. On the one hand EBITDA rose to £4.25bn for the half, but taking into account all the grisly details that EBITDA overlooks, then a net loss of £4.34bn sat on the bottom line. Not that analysts disagreed so much about the strength of the figures as the prospects for continued growth and the extent of the regulatory threat to Vodafone's prospects.
However they chose to see it, there was nothing in the Vodafone results so extraordinary as the reporting improvisation attempted this week by content aggregator Openmobile, which announced that revenue per employee (presumably RoPE for short) had leapt 235% year on year - an achievement helped in no small part by a slashing of the head count upon the closure of European operations. In all fairness to Openmobile, its Asian business appeared to be performing very well, but this seemed a remarkable case of figure massaging. You have to wonder what companies are going to try next: 'Having made our entire staff redundant we are pleased to report infinite RoPE compared with the same period last year.' The mind boggles.
The strong figures from Vodafone, though, gave CEO Chris Gent the ammunition he needed for another sally on Vivendi Universal. Gent essentially called for Vivendi to face facts -- it simply can't afford to buy Cegetel, he pointed out, as he warned his French rivals not to buy something they'd risk having to sell at a loss in a few months' time. As if to prove how much better off Vodafone really was, he then doubled the firm's dividend payment to 10% a year. By comparison, Vivendi was reported to be contemplating the sale of the core utilities business it has owned since the 19th century in order to raise the cash needed to stop Vodafone getting its way.
One firm that had appeared to be marching onwards and upwards over the last few weeks was Research In Motion, thanks largely to the announcement of licensing deals with Nokia, Handspring and Palm. The agreement with Nokia for the licensing of BlackBerry software looked especially promising for RIM, even though Nokia has given no clues as to how many of its devices will include the RIM technology. It was therefore confusing, in the wake of the three licensing successes, when RIM announced that it is to axe 10% of its work force, or 220 jobs. So maybe revenue per employee really does matter after all.
Also demanding explanations this week was Nortel. The Canadian supplier was none too impressed by Taiwanese operator Chunghwa Telecom's decision to award a $348m WCDMA contract to rival Nokia at the end of last month and, having offered to do the job for a relatively modest $232m, Nortel seemed to have a fair point. Not that money was the only selection criterion, of course, but the complaint was considered sufficiently serious for the government to launch an investigation. In the meantime, Nokia's contract will remain suspended.
The praise showered upon '3G-like' services from Vodafone, Orange and others over recent weeks has served to divert some of the attention away from the ongoing struggles of 3G itself. This week, though, there was no cover as yet another 3G licence was marked 'return to sender' and dropped back in the post. Tele2 became the second of Norway's four licensees to decide that enough is enough; it plans to write off the E45m spent on UMTS roll-out so far. Rather than spend another E500m building its own network, Tele2 reasoned, it would be far cheaper to operate as an MVNO on Telenor's network instead. The news will certainly have come as a blow to Siemens, which was to build the Tele2 network, and the vendor community as a whole will be worried in case other operators decide that Tele2 has shown the way forward.
Meanwhile, Italian operator Wind was sending out mixed signals over a possible date for its 3G launch. Trial services will begin in four cities before the end of the year, CEO Tommaso Pompei explained, but five criteria have to be satisfied before a full-scale launch can be considered. Pompei had perhaps borrowed something from the rhetoric of the British government with its five conditions for joining the euro (is it good for British jobs, has hell frozen over and so on). Pompei's conditions were rather less nebulous, however. Dual-mode handsets and a range of handsets to offer consumers were high on his list. Hutchison, gearing up for its 3G launch, will have noted that it hasn't really met all of those criteria. It will have 100,000 NEC handsets available in UK stores by the end of the year, it insisted this week, but its range of 3G wares will obviously be limited for some time. The question is whether that will matter to the consumer as much as Pompei thinks.
Last week's reports of an agreement between Nokia, DoCoMo, Ericsson and Siemens to cap royalty rates on WCDMA patents have provoked some interesting reaction. This week's SPOTLIGHT, below, reveals Qualcomm's own response to suggestions that it is spoiling the party by declining to take part in the initiative. But others were quick to leap to Qualcomm's defence. The royalty agreement reached last week is purely political, they pointed out to an apparently credulous Informer, and will realistically do nothing whatsoever to assist WCDMA's progress. The problem with the patent situation, though, is that nobody seems entirely clear about who owns what. If you ask all the WCDMA vendors what percentage of the patents they own themselves, you'll end up with a total way in excess of a hundred per cent. It's truly confusing. Qualcomm and Chinese vendor Datang, for example, held a meeting this week to try and establish whether or not TD-SCDMA uses any of Qualcomm's intellectual property, and both the European Commission and the US government have been taking steps this week to try and make it easier for manufacturers to license essential patents. Ultimately, you still have to wonder if the simplest option isn't just to build your own technology from scratch.
Finally, as Kai-Uwe Ricke settled into his new office this morning, perhaps wondering quite what he'd let himself in for, he will have had one particular reason to be cheerful: at least he, unlike his counterparts at France Telecom, doesn't have MobilCom to worry about. FT will be hoping that a line can finally be drawn under the whole saga after MobilCom founder Gerhard Schmid agreed yesterday to hand over his shares to a trustee. Having to assume MobilCom's debts of E7bn has made it an expensive divorce, particularly for a company that already boasts the world's largest corporate debt. For Ricke, though, the strife at France Telecom will have provided all the motivation he required. Things here are tough, he may have contemplated, but they could always be worse.
The Informer
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