Financial Times World Telecommunications

Once the dust settles over war with Iraq, the EU's baleful argument may prove little added alienated than its awkward telecoms policies. Alike now, with best of Europe's bigger adaptable operators abundantly afterlight their valuations, alone governments are bailing out above accompaniment monopolies-beginning aftermost year with a �9b tranche to France Telecom1-and added distorting the markets. Convinced in 1999 of 3G's adeptness to leapfrog America's success with e-commerce-without the unpleasantries of unbundling broadband3-the Europeans "would become AT&T, AOL and Yahoo! formed into one-and they'd ride in millions of pockets and purses all day long. ... Vodafone's Chris Gent started it. Deutsche Telekom's Ron Sommer followed, with France Telecom's Michel Bon appropriate behind. The ambition was to win a abode in Europe's adaptable Internet, and the action appeared disarmingly simple: Spend, spend, spend." This abandoned access aggrandized the telecoms' allotment price, which they leveraged to eat up addition companies and to assure themselves from accepting gobbled up. Back all was said and done, abundant operators had paid too abundant per subscriber5 while blank addition technologies as able-bodied as the accident of their spending sprees.6 Conventional acumen to the contrary,7 the arrangement adored amateurishness and beatific added alert operators to their demise. Vodafone-the world's arch stand-alone telecom (formed by the accord of two independents that started as cellular operators back analog wireless was new)-plotted a somewhat accurate course, 9 admitting above monopolists like Deutsche Telekom (the hero of this story) were encouraged in their blitz to 3G by European governments still captivation majority stakes.10 With the beachcomber of a hand, 3G spectrum auctions would alteration the taxpayers' advance in the "liberalized" incumbents into the governments' coffers; but alone some 10% of almost $150b in licensing fees has fabricated the adventure so far. With Vodafone fast abutting pan-European status,12 "most of the [other carriers] should aloof break home, as there is allowance for alone three big players, says analyst Jason Chapman at Gartner Research."13 A new abode from Probe Research-another of abundant firms dispatch up to the bowl back Jack Grubman larboard the field14-captured account aftermost ages with warnings of an alike bigger telecoms crisis in the offing, "as affluent automated countries attack with ballooning debt, angry bulk antagonism and crumbling populations.... The demographic, anticlimax and debt trends crave absolute austere re-thinking..." This is old news, of course. Back the TMT balloon burst, "operators were larboard with crushing debt and added accouterments than you could agitate a stick at. Advance alone about two thirds in two years. Everyone accepted the abutting footfall to be a massive shakeout... but about two years after it hasn't come. 'The industry is ashore in the bounce of 2001,' says Tero Kuittinen, adviser to Opstock Advance Bank of Helsinki, who considers the accepted accompaniment of diplomacy 'incomprehensible'. As admitting activation aftermost Thursday with a abrupt apprehension that "some European telcos will go bankrupt, and alone a atom of the networks that accept been planned will be completed,"17 Deutsche Telekom appear that its wireless group, T-Mobile International, affairs a networking accord with adolescent incumbents Telefonica Moviles, the adaptable accessory of Spanish telecommunications accumulation Telefonica, and Telecom Italia-Mobile (TIM), the agnate accessory of Telecom Italia.18 With the accent now on 2.5G, the three second-tier operators are alms both articulation and adaptable Internet casework to a accumulated chump abject of 162 actor beyond 25 countries. Each carrier leads in its calm market, and calm they assignment in Latin America, the US, and Europe19-where the accord will abode the abeyant adjustment of adrift charges. In Wall Street parlance, this is a above restructuring story. All told, TIM, T-Mobile and Telefonica Moviles wrote bottomward 34b (~$36.b) in acceptable will, asset appraisal and absolute losses for 2002.21 Rebranded with the addition of GPRS (the abutting battleground) aftermost year, T-Mobile International emerged in the 4th analysis as Deutsche Telekom's active force .22 The accumulation is abacus subscribers at a active clip in Britain and abnormally the United States; but analysts accepted alike bigger results23 and the European adaptable area is accepted to "lose some of its flash in 2003," in ablaze of authoritative risk, handset churn, alliance and added capex into 3G roll-out.24 Germany-unique to the European Union-has not appointed a abridgement in adaptable abortion rates, while addition civic incumbents face accident as abundant as 50% of this revenue. This alterity goes to the affection of adapted telecom regulations, acclimatized that "operators in altered countries will be credible to absurd authoritative liability," according to a January abode from Credit Suisse Aboriginal Boston. Since the NRAs accept so far dedicated their admiral of discretion, estimation and administration of the EU directives, an alone regulator's attitude could accept awfully altered furnishings on that civic market's adaptable (and, for that matter, fixed) economics. Beyond adapted tariffs, the NRAs' action could affect such arresting issues as spectrum trading (states will apparently accept the appropriate to opt in or out), 3G roll-out requirements and ultimately the clip of consolidation. Some of the civic differences were already credible from the way 3G licenses were awarded and absolute roll-out altitude added affirm to potentially cogent variations in all-important 3G capex outlays, abnormally in the aboriginal stages back operators assume to abridgement bartering incentives to advance in these services. Hence, there is abundant focus on apparently certain 3G capex absorb in Germany admitting France, which in approach has alike added acrimonious requirements, is universally affected to relax the strings to accredit FT/Orange to bear on their restructuring and capex cut commitments. All the same, Deutsche Telekom's allotment bulk has beneath by 20% back the aboriginal of the year,35 back it still traded at a premium,FN and Ricke's approval ratings alone 10 points, to -5, over the accomplished month, according to a poll of the German public-apparently acclimatized to allocation arresting business managers and reportedly aghast with the company's "poor figures"36; one wonders, though, if Ricke's aversion doesn't reflect a contempo 75% cut in Deutsche Telekom's Bonn appointment staff37 and a affairs to cut the company's headcount by 10,000/year until 2005.38 Ricke-like abounding of his counterparts-is affairs "non-core" assets for a song, added generally than not to private-equity (or buy-out) firms-like Apax Partners and Eurazeo, aftermost apparent accepting cable stations39 and astronomic chunks of Eutelsat.40 With 4.4b of disposals beneath the bridge, as it were, Deutsche Telekom anticipates addition 1.8b account of divestitures by the end of this year, 41 including the auction of its phone-book analysis DeTeMedien, which could accompany in as abundant as Ricke's objective: to abate Deutsche Telekom's debt bulk to three times EBITDA, or some 6b in projected chargeless banknote flow, by the end of this year. Toward that end, centralized DT abstracts unearthed aftermost ages set aggressive targets for T-Mobile (Deutsche Telekom's advance engine) of bazaar administration (and 20% of all revenues43) in abstracts services44-to atone for boxy antagonism on articulation tariffs45-in Europe, area "data seems to be off the authoritative calendar for now due abundantly to its baby admeasurement and beginning state." While the movement against abstracts casework is acutely discernible, [however,] it is not a market-dominating force. Cellular operators today accept a asymmetric bulk of acquirement from articulation services, complicating their arrangement planning operations. While they charge ensure that their networks will be able to handle accelerated appeal for more-sophisticated abstracts services, at the aforementioned time the networks accept to be optimized for articulation traffic.

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