EU8 Opportunities

Several years ago, small North American startups – especially makers of Ethernet switches and MSPP gear – starting flocking to Asia in the hopes of getting a piece of the booming market for new telecom gear, especially Ethernet services and equipment. The idea of moving East was that it would give the revenue-starved telecom companies from North America something to chew on while the North American market starved through a capital spending drought.

As it turned out, the business in Asia wasn't just something to chew on – it was a meal. And the drought in North American turned into a full-blown desert. The viable revenue stream from Asia helped keep many private and public companies in the telecom equipment markets afloat. Without the business in Asia, imagine how much lower the telecom depression could have gone.

The lesson here is that equipment providers and service providers need to think globally as never before. Emerging technologies such as carrier-grade Ethernet, MPLS, and VOIP are pushing the same standards around the globe, following the lead of the Internet. The new wave of standards, especially Ethernet, is resulting in cheaper components and lower costs of networking overall – helping to expand markets globally.

So are there new emerging markets beyond Asia? According to the latest research from Light Reading Insider, Eastern Europe may well be one. Though it's obvious the capital at stake here is not as large as the amount of money being poured into China, the newly minted EU8 nations – eight emerging economies that have recently been added to the European Union – are ready to spend on telecom infrastructure to catch up with their Western neighbors (see LRI: Eastern Europe Boom on Hold). Large pan-European players such as France Telecom SA (NYSE: FTE), Deutsche Telekom AG (NYSE: DT), and Interoute Telecommunications see this opportunity, and they are pumping big dollars into joint projects in the EU8.

Table 1: Carrier Investments in the New "EU8"
Company Investment Status Observations
Deutsche Telekom Germany's dominant carrier owns about 60 percent of Hungary's Magyar Tavkozlesi (Mat�v) and about 49 percent of Slovakia's Slovensk� Telekomunik�cie (Slovak Telecom) plus assorted local telco and mobile interests in those countries. DT might grab a larger stake in Mat�v via various loan agreements; Mat�v has JV deals with DT's T-Systems unit for systems integration and international carriage, and it now owns 49 percent of T-Systems Hungary; Mat�v's new CTO came directly from T-Com, DT's land-line telecom unit.
France Telecom FT is taking full 47.5 percent ownership of Polish incumbent Telekomunikacja Polska (TP); it also owns various-size shares of local telco, wireless, and ISP companies in Estonia, Poland, and Slovakia. An FT-led consortium previously controlled TP, but FT took direct control in a recent deal with partner Kulczyk Holding, buying another 13.57 percent of the company for �40 million; TP operates in FT's monolithic corporate structure, and there are former FT execs managing TP.
TeliaSonera TeliaSonera owns a piece of Polish carrier Netia (diluted from 48 percent to 4.4 percent last year) and large stakes in the Baltic incumbents (49 percent of Estonia's Eesti Telekom, 49 percent of Latvia's Lattelekom, and 60 percent of Lithuania's Lietuvos Telekomas), as well as portions of their wireless operators. The Kingdom of Sweden owns 45 percent of TeliaSonera and the Republic of Finland holds another 19 percent, so it should know politicians well; the company wants to buy the remaining 51 percent of Eesti, but the Estonian government balked at selling the 27 percent it holds, saying the company's offer was too low.
Source: Company reports

Eastern Europe is unique in that it's not plagued by the overcapacity and market saturation found in the West. Eastern European markets have been underserved by telecom services for decades – and their legacy installed base is much smaller – so there is enormous opportunity to build out next-generation services to boost the unfolding economic scene.

The bottom line: Emerging global standards are expanding, and the EU8 nations are likely to take advantage of this cost-effective telecom technology to build next-generation networks and services.

— R. Scott Raynovich, US Editor, Light Reading

This report, Telecom Opportunities in the EU8, is available as part of an annual subscription to Light Reading Insider, priced at $1,350 for 12 monthly issues. Individual reports are available for $900.

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