A Week in Wireless 66
23-AUG-2002
Looking back on it, it was very much like a special telecoms edition of Supermarket Sweep. Operators rushed around Europe in a bid to fill their wireless trolleys with all the 3G licences they could get their hands on. In the spree to end all sprees, money was no object -- you just grabbed what you could in the time allowed.
Except that money was an object. First, Telefonica and Sonera admitted to having wasted E9.2bn on 3G investments between them and, this week, KPN announced that it was booking a charge of E9bn relating almost entirely to 3G-related write-downs at E-Plus and BASE , its German and Belgian subsidiaries. The write-down on E-Plus was particularly dramatic. Exactly 750 days since E-Plus took delivery of its UMTS licence, KPN admitted that E6.6bn of the money invested in E-Plus's 3G project had been frittered away. That's E8.8m every day or, without wanting to rub it in too much, E1.40 per day per E-Plus subscriber. As if relieved that the charade was over somehow, investors responded by pushing KPN's share price up by 9%.
UMTS fans will have drawn comfort from the fact that KPN has not completely pulled the rug from underneath its Belgian and German 3G operations. However, the same cannot be said of its involvement in UK operator Hutchison 3G , with KPN writing down its 15% stake in the venture by E1.2bn (it only cost E1.4bn in the first place) and expressing an eagerness to sell its shares. Even the eternally optimistic Hutchison could not help but feel deflated by so blunt a vote of no-confidence. And who might want to buy KPN's stake? Hutchison itself or 20% stakeholder NTT DoCoMo seemed the only likely candidates.
And the bad news just kept on coming. First, Cegetel decided to trim its UMTS infrastructure spending by E200m for the remainder of the year. Then Portugal's four licensees issued a joint statement saying that, while they are prepared to meet their launch deadlines at the start of next year, a postponement would make much better sense. In an interview, the CEO of Philips Semiconductor , Scott McGregor, admitted that he was unconvinced by the 3G proposition. And Datamonitor delivered the coup de grace as it slipped into the role of prophet of doom and advised operators to ditch their 3G plans at the first opportunity, regardless of how many billions they may already have invested. A 3G licence is a "licence to lose", Datamonitor intoned, before rounding off its vision of the 3G apocalypse with a chirpy invitation to read other Datamonitor reports if, that is, "you enjoyed this article". Enjoyment, though, was hardly the word, not least because there was an uncomfortable suspicion that the advice, while unpalatable, made pretty good sense.
Anyone who resisted the temptation to take the rest of the week off in sheer despondency will have noted the increasing likelihood of Vodafone taking complete control of the Vizzavi portal by buying the 50% stake owned by its ailing partner Vivendi Universal . The price is thought to be around E150m, but of greater interest was the place that a wholly owned Vizzavi would occupy in Vodafone's thinking. E1bn has reportedly been ploughed into Vizzavi with little to show in return, and it looks questionable whether the Vizzavi brand will survive.
Still more trying were the problems facing the new man in the Deutsche Telekom hot seat, Helmut Sihler. The target of reducing DT's E65bn debt to E50bn by the end of 2003 remains, Sihler confirmed this week, although he admitted that he was still fairly stumped about how best to go about achieving it. The announcement of a Q2 net loss of E2.1bn hardly helped the cause. The sale of VoiceStream for between E10bn and E15bn would therefore go a long way towards stopping the rot, and with AT&T Wireless failing to commit itself, Cingular emerged this week as DT's most likely benefactor. A merger with VoiceStream would put Cingular on a par with Verizon in terms of subscriber numbers, not to mention filling the various holes in Cingular's patchy coverage. In the meantime, the rebranding of VoiceStream as T-Mobile USA will proceed as planned. Cingular also has its own matters to attend to, with its intention to axe up to 3,000 jobs being unveiled on Tuesday.
With various doom merchants predicting 3G meltdown, the vendors turned to the Q2 handset figures in search of solace. Nokia certainly liked what it saw in the figures published by Strategy Analytics , since they showed that its share of the market had risen to 37.2%. Motorola also consolidated its number two position, growing its market share to 17.3%. Singled out for particular praise was LG Electronics , which remained among the ranks of nameless others (i.e. below fifth spot) but reportedly sold more GSM handsets in Q2 than it did in the whole of 2001. Very much in LG's sights is Sony Ericsson , which again witnessed a decline in its market position -- it now commands just 5.2% of the handset business.
A far more intriguing development on the handset front, though, was the growing speculation that Apple might be preparing to enter the mobile phone market in partnership with none other than the flagging Sony Ericsson. The conceptual i-phone would effectively be a Sony Ericsson underneath the hood but boast the trendy Apple look on the outside. Sceptics were quick to write off the prospects of an Apple phone ever actually hitting the shelves, but the dismissal seemed rather hasty. These rumours have to start somewhere after all.
Always one to fight the corner of the ordinary working man, the Informer was disturbed this week to see a report suggesting that a system of class inequality is developing in the US market. You get what you pay for, of course, and Sprint PCS president Charles Levine went on the record to suggest that if offering different classes of service was acceptable practice for banks and airlines, then there ought to be no reason why mobile operators shouldn't be allowed to reward their high-paying customers with a superior service as well. Had the Informer's own mobile phone not been supplied gratis courtesy of the kind corporate relations people at a prominent multinational operator, he may well have pointed to the bourgeois capitalist affront of such an attitude. As it is, he'll keep shtum.
Few lips were sealed, however, when it came to the criticism, and in some cases out-and-out derision, expressed over the $32.2m pay-out received by Salomon Smith Barney analyst Jack Grubman following his resignation this week. This was the man who had amassed a tidy fortune by strongly recommending shares in WorldCom , Global Crossing and others right up to the moment when they went spectacularly bust. It seemed that only dishonesty or incompetence on Grubman's part could account for the manner in which he had so disastrously misled investors, and neither quality appeared too deserving of such a gilt-edged handshake. But it was really just another example of the skewed logic which big business increasingly chooses to apply in the cases of hopeless executives: "The more you foul up, the more we'll pay up."
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