x
Optical/IP

Marconi Bags Wireless Deal

Marconi plc (Nasdaq/London: MONI), in need of as much positive public relations as it can get, has won itself a transmission network agreement with European mobile operator mmO2 plc that has mysteriously picked up a potential value of more than $150 million (see Marconi Transmits O2's 3G).

The agreement is based on the provision of equipment, consultancy, and support for point-to-point microwave links from base stations to O2 Germany's fixed network as well as short- and long-haul SDH equipment. But while the official press release does not mention financials, early reports of the deal stated it could be worth up to £100 million ($US156 million/€158 million).

That would be a tidy number for a company sporting a current share price within kissing distance of zero -- actually 1.65 UK pence, up 11 percent from 1.37 pence at lunchtime in the U.K. Monday.

With the figure already bruited about globally, chief Marconi spokesman Joe Kelly disowns it without dismissing it. "Someone leaked the news to the Sunday Times and it stated that value. I didn't come up with this figure," he says. So that figure is bunkum, then. "No one knows what it's going to be worth. It depends on the speed and size of network rollout, but we simply don't know what we are going to supply or when. It would be naive to put a figure on this. But it could be that high if you assume best case guesstimates." (Unstrung's granny always used to say you should never assume, as it only makes an ass out of u and me. She was a wise old beezer.)

MmO2 is also keen to shoot down such a lofty valuation. "The value of this framework agreement is dependent on a number of factors, including Marconi's ability to deliver to our demands, the extent of our rollout, and the uptake of 3G subscriptions," says mmO2 spokesman Simon Gordon. "It will be determined by the number of connections we have."

Gordon would not commit to what the bottom end of the scale would be, or what any initial orders would include, "for commercial confidentiality reasons... Obviously we will be rolling out in the major cities first," he says, but O2 Germany will request infrastructure from Marconi as and when it needs it. "It's like having them on tap."

This will be a one-off deal for Marconi within the mmO2 group, it seems. "The German network is mainly made up of microwave links. It is only fair to point out that we also use Alcatel SA [NYSE: ALA; Paris: CGEP:PA] equipment in this part of the network, too." Indeed the French vendor announced its framework agreement with the German operator just last week (see O2 Germany Picks Alcatel).

While it seems that Marconi and Alcatel are set to go head to head in Europe as the equipment providers for microwave backhaul deals, with Nortel Networks Corp. (NYSE/Toronto: NT) lurking in the background, Marconi's CEO Mike Parton seems confident this agreement will be a good advertisement for its capabilities, making "us a strong contender to win further 3G transmission network builds across Europe." Kelly even says Marconi has some other similar deals that it has won directly, but couldn't provide names.

Kelly does admit that "without question some of our 3G wins will come from [reseller deals with] Ericsson AB [Nasdaq: ERICY] and Nokia Corp. [NYSE: NOK]. Our deal with Ericsson, for example, is for SDH and DWDM equipment in a 3G mobile environment. But we play in other areas too -- radio equipment and wireless network planning and consultancy."

So what does this deal mean for Marconi generally? "It throws Marconi a bit of a lifeline and shows mobile operators that it has a future in this industry," says IDC senior research analyst Paolo Pescatore. "Microwave links offer an efficient way to transmit data," he adds, saying that the revenue possibilities would still exist even if O2 Germany was to be merged or acquired, as has been rumored. However, the IDC man believes mmO2 will look to maintain its presence in Germany, "as it is such a major market that can drive a lot of traffic onto its network."

Matt Lucas, a wireless equipment analyst at Lehman Brothers, agrees that the agreement "is a good endorsement of Marconi's technical expertise and its financial viability," but feels the key factor is whether the driver for the deal was the existing microwave business that would have come with the acquisition in late 1999 of Bosch Telecom GmbH, or whether the SDH equipment is the key element. "It's less significant if the deal has been leveraged from the existing point-to-point business with Viag Interkom [former name for O2 Germany] and smaller German city carriers that came with Bosch. That would be a continuation of existing business. It would impress me if Marconi was to win point-to-point deals outside Germany," says Lucas. He believes the deal will likely be worth "tens of millions" of dollars during the four-year period.

Any revenue is a bonus for Marconi just now. The company agreed on a financial reorganization with its creditors in late August that will leave current shareholders with just 0.5 percent of the company (see Marconi: The Deal Is Done). In the meantime it is looking for a new chairman -- and having trouble finding anyone prepared to take on the role -- and trying to win as much business as possible.

While Marconi grapples with its particular predicament, mmO2 has its work cut out to plan, build, and launch 3G networks. It plans to launch 3G services "no earlier than the second half of 2003 in Germany and the U.K." The exact timing of commercial deployment is dependent on the availability of dualmode handsets "in quantity and quality," says Gordon.

MmO2's loss-making German operation has been cause for some financial concern for the mobile group, but it's on track for EBITDA (earnings before interest, tax, depreciation, and amortization) break-even this fiscal year. It has even been the subject of takeover or merger rumors concerning KPN Mobile's German unit E-Plus Mobilfunk GmbH as competition intensifies in Germany, where MobilCom AG is in deep trouble and Group 3G (Quam) has given up the ghost (see Quam Quits for Good). The market is dominated by T-Mobile AG and D2 Vodafone, which between them account for about 80 percent of users, having about 23 million subscriptions each.

— Ray Le Maistre, European Editor, Unstrung
www.unstrung.com
Be the first to post a comment regarding this story.
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE