FTTH in Sweden: Bredbandsbolaget IPO
quote.bloomberg.com
10/06 07:42
Bredbandsbolaget Needs to Justify Value: IPO Focus
By Philip Lagerkranser and Linda Andersson
Stockholm, Oct. 6 (Bloomberg) -- Bredbandsbolaget AB, which links Nordic households to the Internet via fiber-optic cable, is likely to disappoint investors buying into the Swedish company's $390 million initial share sale, asset managers said.
The company, whose owners include NTL Inc. and the Wallenberg family's Investor AB, is unlikely to add clients fast enough to justify its value of about 3 million kronor ($307,000) per paying client and 16 times estimated 2002 sales, investors said.
Bredbandsbolaget, known as B2, also has to convince Nordic households that a chunk of their entertainment budgets should go to downloading videos or playing games over the Internet.
``You've got to be very optimistic to get the same value'' that the investment bankers give the company, said Anders Jarheim, who helps manage about $2 billion in stocks at Oehman Fondkommission AB and has yet to decide whether to buy the shares. ``It all depends on what kind of services it offers and how much it gets paid for them.''
B2 is selling 29 million shares at 115 to 165 kronor, giving the two-year-old company a market value of $1.6 billion based on the middle of the price range. That's more than double the worth of Utfors AB, which aims to start selling competing services to households over its fiber network. Utfors, which currently focuses on companies, had first-half sales of 141.9 million kronor.
Morgan Stanley Dean Witter & Co., which has a 1.4 percent stake in B2, is leading the global offering. The shares start trading in Stockholm and on the Nasdaq stock market Oct. 11.
Birgersson's Baby
Bredbandsbolaget, founded by Chairman Jonas Birgersson, aims to provide a quarter of Sweden's 4 million households with connections powerful enough to let users download videos in seconds. At the end of August, it had 4,300 paying customers.
By plugging fiber-optic cable into apartment blocks, B2 can offer faster downloading than on copper wire, the most common type of connection. Customers can send and receive data at about 10 megabits per second, more than 100 times faster than via modems.
B2, which currently only generates revenue by charging for Web connections, is betting online services will generate the bulk of revenue in the coming years. The two-year-old company offers unlimited Internet access for 200 kronor a month.
Lehman Brothers Inc., which is helping manage the IPO, expects B2's sales to rise to 1 billion kronor in 2002. The company had first-half sales of 2.2 million kronor.
Much of the cash raised in the IPO will go to laying more cable. B2 plans to plow 5 billion to 7 billion kronor into its network in Sweden and Norway next year, said Chief Financial Officer Jean Abergel.
``Once you've set up the network, it's time to deliver the services that people demand,'' said Chief Executive Jan Morten Ruud at a press meeting, where he demonstrated how to download music videos and watch the Olympics in real time.
Business Model
Capacity for those services can only be guaranteed in B2's own network. Once customers access the wider Internet, downloading times are subject to bottlenecks. For example, a music file that would take seconds to download from B2's servers would take longer if done from a server in the U.S.
Such restrictions mean that B2 and its peers must carry all the services that require fast downloading on their servers, the powerful computers that run Web sites.
``If they can't provide services that are good enough, the whole business model will collapse,'' said Roger Jansson, an analyst at research firm Redeye, which is advising investors not to buy Bredbandsbolaget shares.
To ensure that customers don't jump ship, Bredbandsbolaget signs three- to five-year agreements with tenants' associations that block rivals from providing services on its network. Competitors such as Utfors and Telia, Sweden's biggest phone company, have similar arrangements.
Walled Gardens
Antitrust authorities claim broadband companies curb competition by tying up users in their own networks -- creating so- called ``walled gardens.''
B2 has so far signed contracts to connect 228,000 Swedish households to the Internet. The company targets 100,000 installed links in Sweden by year-end, up from 26,800 at the end of August. The European Commission and the Swedish National Post and Telecom Agency are investigating competition in the broadband industry. That scrutiny may lead to a change in the law to force operators to open up their networks to rivals.
Such a law ``would make the infrastructure a commodity,'' Jansson said. B2's ``business model is built on the fact that they have their own network that gives them a head-start.''
The market for broadband services is set to mushroom as the number of European Internet users surge. In 2005, about 40 percent of Swedes and 36 percent of Norwegians will have high-speed links to the Web, according to market surveyor Forrester Research Inc.
Investors will have to wait a while before B2 starts making money on that growth. In the first half, the company lost 276 million kronor. It sees ``significant losses'' in the foreseeable future and, according to the worst-case scenario in the prospectus, may never turn a profit.
``Everyone gets all happy and optimistic when something is new. Then comes the setback as things took longer than expected and people weren't willing to pay as much as estimated,'' said Jarheim. ``The final result is usually something in between.''
B2's current shareholders also include Framfab AB, Sweden's top Web consultant; The Carlyle Group, a U.S. buyout firm and Intel Corp., the world's biggest chipmaker. |
