A Week In Wireless No. 84
17-JAN-2003
It's a big world out there, sometimes too big - even for the major players on the international corporate stage. Take McDonald's and its once prosperous one-burger-fits-all philosophy. Having come to the painful conclusion that there are only so many wholesome 'meat' products that you can feasibly sell, McDonald's this week announced the closure of 175 of its establishments, even though 'branch closure' had always been a term completely alien to the McVocab. And it was also the turn of Nokia - runaway leaders in the global handset business - to accept that market dominance can still have its limitations.
The tough nut for Nokia, so popular elsewhere, has been South Korea. Since launching its CDMA line there back in June 2001 the Finns have been unable to raise market share above a lowly one per cent and, as a result, their Korean business is having to close its doors. In the grand scheme of things, it's not a major setback for an organisation of Nokia's reach, but it certainly served as a reminder that even the biggest guns misfire from time to time. The popularity of domestic vendors Samsung and LG has been largely responsible for Nokia's failure to gain a foothold in Korea, and Samsung in particular this week reaffirmed its credentials as principal challenger to the global top two, Nokia and Motorola. Most significant was the news that Samsung has been granted a licence to sell GSM phones in China; but it was also interesting to see Samsung step up to answer DoCoMo's SOS for a leading manufacturer to make handsets for its European i-mode service, which had so far only inspired products from NEC and Toshiba - relative minnows in Europe.
For DoCoMo, the recruitment of Samsung to the i-mode cause could hardly have been more opportune, given the scrutiny under which the Japanese operator continues to labour. Surprisingly, given DoCoMo's disastrous record when it comes to investing in overseas operators, CEO Keiji Tachikawa was this week quoted as saying that he was actively seeking an "equity relationship" with one of the European heavyweights. Only four operators will be left standing in Europe, he predicted (which can hardly have been an expression of confidence in the future of DoCoMo's existing partner, KPN Mobile). And Tachikawa discounted Orange as a possible companion, describing it as being "too weak" (again, a harsh judgement given DoCoMo's previous choice of partners). Since DoCoMo already has an equity relationship with European new kid Hutchison, the likeliest candidates appeared to be Vodafone, TIM and Telefonica Moviles. Telefonica, as an i-mode licensee, would perhaps be the preferred choice.
And DoCoMo had more good news besides the Samsung announcement, as sales of its i-shot camera phones passed the five million mark this week (although rival J-Phone rather gazumped the announcement by claiming to have shifted eight million of its own Sha-mail phones). Tachikawa also predicted some respite for the languishing Foma service, promising dual-mode 3G phones by the spring and the release, within days, of a model with much-improved battery life. Particularly welcome for the Japanese industry as a whole were reports that, in November, monthly handset sales rose year on year for the first time in 18 months to 3.78m units.
So with the decline in handset sales having finally been reversed in Japan, and with Finnish sales witnessing a similar rebound in the run-up to Christmas, was it time to ask, for the first time this week, whether The Recovery was finally underway? Goldman Sachs was certainly hinting as much, as it raised its outlook on the European telecoms sector from 'neutral' to 'attractive'. But then there's no accounting for taste, of course. Alcatel CEO Serge Tchuruk, despite expecting the French vendor to return to profitability this year, warned that talk of a telecoms recovery was entirely premature. "2003 will not be a good year by Alcatel's standards," he sniffed, although it will by recent standards, clearly.
Whatever the case, 2003 looks like being far more comfortable for France Telecom than analysts were predicting just a couple of months ago. The markets reacted warmly to FT's decision to issue E5.5bn in bonds rather than the anticipated E3bn, and any short-term cash flow problems seemed to have been skirted. As such, FT executives would perhaps have been forgiven for indulging in a touch of Schadenfreude at the expense of the former MobilCom chief Gerhard Schmid, whose long-running dispute with FT was a major factor in the French operator's recent difficulties. Schmid received a visit from the Polizei yesterday and had his home searched as part of an investigation into the alleged embezzlement of E71m of MobilCom's money by Schmid and his wife. The couple, if indeed guilty, may have reasoned that a company with E8bn to squander on a 3G licence would hardly notice if another E71m slipped through the cracks.
Also accused of financial misdeeds this week was mmO2, whose German arm faces allegations of taking advantage of last year's conversion from Deutschmarks to euros to surreptitiously bump up prices. This was precisely the cheap trick that European consumers were most afraid of when the euro was introduced but, in mmO2's defence, it seems surprising that the allegations should have come to light so long after the event.
Separately, mmO2 was busy weighing up offers for its loss-making Dutch business. O2 Netherlands, which boasts 1.34m subs, is thought to be worth no more than £200m (or £150 per customer) -- BT, let's not forget, paid £1.2bn for just half of the company at the top of the market in 2000. Vodafone was said to have been leading the bidding alongside T-Mobile-owned Ben, but today ruled itself out of the bidding process. Vodafone did, however, demonstrate its commitment to the Netherlands this week by beginning moves to buy out the 22% of its Dutch business that it does not already own for around E769m. It also moved to buy the remaining shares in its Swedish and Portuguese subsidiaries for E527m and E704m respectively.
In their home UK market, meanwhile, both Vodafone and mmO2 had other concerns. After a year's deliberation, the UK Competition Commission reported this week that call termination charges do indeed need to be cut, perhaps by as much as a third over two years. Operators had begged for mercy on the grounds that 3G roll-outs would suffer as a direct result of any such cuts, but the Commission evidently had little sympathy with that. And of course there's the impending arrival of Hutchison for the UK incumbents to worry about.
For the Koreans, though, there was at least some consolation in the face of a Nokia-less future and the disappointing news that they are to be unaffected by the McDonald's closures. SK Telecom has reportedly launched the first wireless hypnotism service, the idea being, nobly enough, that by watching a series of suggestive images on their handsets subscribers should be able to hypnotise themselves into giving up smoking (and maybe spending the money with SK instead). And in Europe, Hutchison was reported to have built a similar anti-smoking dimension into their own 3G packages. Smokers signing up for the £100 a month plan, the thinking goes, will no longer be able to afford it.
The Informer
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