May 13, 1999
Corporate Giants Angle for Small Mobile Phone Company in Britain
By EDMUND L. ANDREWS
RANKFURT, Germany -- It is Britain's smallest mobile phone
company and has yet to turn a profit. But One 2 One has ignited
a heated bidding war between Europe's biggest telecommunication
companies.
Two months after its owners, Cable & Wireless PLC and Mediaone
Group, announced their interest in selling out, One 2 One has attracted
several bids around 10 billion pounds, or more than $16 billion at current
exchange rates.
That would be nearly 13 times One 2 One's 1998 revenue of 781 million
pounds. The high purchase price reflects strategic and technological
changes sweeping through Europe.
Deutsche Telekom AG, which is already struggling to complete its
acquisition of Telecom Italia, is intensely interested. So is Mannesmann
AG, Deutsche Telekom's biggest competitor in Europe, which owns
stakes in numerous other European communications ventures.
Vivendi SA, the French water utility that has transformed itself into a
media and communications conglomerate, has also acknowledged
submitting a bid. Industry executives think that France Telecom is
considering one, as well.
To be sure, mobile phone service is still growing at a torrid pace. But the
bidding for One 2 One also illustrates a scramble by companies for a
pan-European position as well as the imminence of new technologies for
high-speed data transmission.
"The overall play here is not just for the subscribers," said Steve
Wreford, an analyst with Charterhouse Securities in London. "It's for the
growth that will take place over the next three years."
If Deutsche Telekom succeeds in acquiring Telecom Italia, it would own
mobile phone networks in Europe's biggest and second-biggest wireless
markets. One 2 One would give it a national franchise in Britain, the
third-largest market.
Deutsche Telekom is in the midst of trying to raise about 20 billion
marks, or $11 billion, to finance its international expansion. Though the
company has refused to comment about One 2 One, people close to it
say the German phone giant would love to acquire a base in Britain.
Mannesmann, which obtained Germany's second mobile phone license
and is slightly ahead of Deutsche Telekom in mobile customers, is a
partner in the Italian wireless company owned by Olivetti and is
supporting Olivetti's rival bid to take over Telecom Italia.
At the same time, France Telecom may well be interested in blocking
further expansion by Deutsche Telekom. The French company had a
strategic alliance with its German counterpart, but was infuriated when
Deutsche Telekom made its bid for Telecom Italia. France Telecom
announced plans to sell its 2 percent stake in Deutsche Telekom and is
threatening to take legal action.
But at least as important as the desire for geographic expansion is the
introduction of much faster data technology in Europe, some of it in the
next few months. The technology is based on the European digital
standard for mobile phones, called GSM, which is ubiquitous in Europe
and most other countries, but not in the United States.
Beginning this summer or fall, European carriers are expected to
introduce "high-speed circuit switching data," a technology that can
transmit material at 56,000 bits a second -- almost as quickly as today's
fastest modems over normal phone lines.
Next year, carriers plan to offer a faster technology, called general
packet radio service, which could transmit at 115,000 bits a second.
Nokia, the big Finnish maker of cellular phones, plans to produce
telephones equipped with the packet technology later this year, and
Nordic countries may start offering the service early next year.
And European governments are already beginning to distribute new radio
licenses for a third-generation technology that would be fast enough to
transmit video and high-resolution pictures.
Britain has announced plans to auction five new radio licenses for this
new technology in the next year. Industry analysts predict that four of
those will go to the nation's four existing cellular telephone companies,
because they can integrate the new networks into their existing systems.
"They don't have a special right to those licenses, but they can afford to
bid more because it will cost them a lot less to build the networks," said
Justinian Clifford Bowles of Commerzbank Global Equities in London.
All of this has heightened the value of existing cellular phone services,
even though competition and price warfare has become intense. Orange,
Britain's third-largest carrier, now has a stock market capitalization
around $16 billion.
One 2 One's current owners hired Lehman Brothers to explore options
two months ago. The company is a 50-50 joint venture between Cable
& Wireless and Mediaone, which AT&T is acquiring for $58 billion.
Mediaone had been trying to sell its international properties before it
became a takeover target itself, and AT&T has indicated that it wants to
sell foreign properties, as well. Cable & Wireless reiterated Wednesday
that it was considering all options for its stake, including a public stock
offering. But industry executives say it is most likely to sell One 2 One to
another company.
It would be hard to imagine a more confused environment for an auction.
Many government officials in Italy oppose Deutsche Telekom's intended
takeover there. Beyond that, many institutional investors have been
extremely dissatisfied with Deutsche Telekom's new stock offering.
Money managers here complain that the company's chairman, Ron
Sommer, has offered little explanation of its plan for expansion. "We'd
prefer they made the acquisitions first and then asked for more money,"
said Michael Schneider, fund manager for DEKA Tele Medien, a
German mutual fund that specializes in communications and media
stocks. "We were unconvinced."
Big competitors are also unsettled. European companies are still getting
used to the idea that Vodafone, Britain's second-biggest cellular carrier,
has an agreement to buy Airtouch Communications of San Francisco.
Airtouch owns numerous cellular interests in Europe and is a partner with
Mannesmann in Germany's second-biggest cellular carrier.
Indeed, the Airtouch deal means that Vodafone must sell its own minority
stake in Germany's third-largest cellular company, E-Plus.
Mannesmann is waiting for the outcome of the Telecom Italia takeover
process. If a hostile offer by Olivetti should beat Deutsche Telekom's,
Mannesmann has an agreement to buy Olivetti's stake in Italy's
second-largest cellular carrier.
The upshot is that what happens in Italy could have a big impact on what
happens in Britain. And regardless of who wins the fight in Italy, there is a
good chance that a German company will end up as Europe's new
wireless giant
Copyright 1999 The New York Times Company
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