3G: Make or Break Time
The performance of mobile data services, such as KPN Mobile's i-mode offerings in the Netherlands and Germany, will act as a key reference point for the cautious and pessimistic financial markets.
So says Tamsin Pert, an analyst at Analysys (try saying that after four large martinis) and the author of a report that looks at the debt mountain causing Europe's former telco monopolies so much grief (see table below and Euro Telcos Must Look Ahead).
"If mobile data is a flop, and if the cost of providing such services has been underestimated, the relationship between the carriers and the money markets about how to manage the 3G licenses will be a major issue," says Pert.
"KPN is looking at i-mode as a way of getting customers to use mobile data services. It could be a key indicator as to the success of 3G," and whether the markets will be prepared to fund further network upgrades and expansion, Pert tells Unstrung, adding that "there is a danger that the financial markets may be overly pessimistic" at present.
Pert says each of the European incumbents faces its own dilemma about what to do with its mobile assets (if it still has any), as asset writedowns and the strategic disposal of wireless businesses all have potential gains and pitfalls. In particular, carriers looking to reduce some debt from the proceeds of a mobile sale may find they lack any suitors even at a reduced price.
"They can put a cap on capex, cut staff and try to sell some assets to reduce their debts, but who is going to buy anything at the moment, and at what price? I think there will be some consolidation, though not in the near future, with the less successful mobile subsidiaries the targets."
Pert says each country has its own dynamics, with regulatory issues certain to play a key role in determining the rate at which the telcos can reduce their debt. The severity of local competition and the ability of the incumbent to focus on broadband services will also be key issues.
But although there is a great deal of focus on debt issues at present – especially in France and Germany – the carriers must continue to look to the future and manage their assets according to their aspirations. Pert describes France Telecom SA, Telefònica and Deutsche Telekom AG (NYSE: DT), for example, as "Globetrotters," as they are trying to maintain an international presence. France Telecom, despite its massive €63 billion debt, has a broad geographic spread and businesses that are very strong in their markets, such as Orange SA and Equant (NYSE: ENT; Paris: EQU).
At the other end of the scale are the "Homebodies" (sounds a bit spooky) that are focusing purely on their domestic territory. Pert names Irish telco Eircom as an example, and says British Telecom (BT) (NYSE: BTY) is in danger of slipping out of the intermediary "Eurovisionary" category – populated by the likes of KPN and soon-to-be-weds Telia AB and Sonera Corp. (Nasdaq: SNRA) – into this zone if its BT Ignite business cannot make more impact in continental Europe.
— Ray Le Maistre, European Editor, Unstrung