Eurobites: Big Guns Fire Salvos

The continent's major operators are all jostling for position to be Europe's dominant next-generation services player

July 4, 2005

6 Min Read
Eurobites: Big Guns Fire Salvos

As our friends across the Atlantic celebrate 229 years of independence with an extended weekend fiesta, there's no letup in the telecom action on the Old Continent as leading carriers make significant decisions about their identities, international reach, and networks.

Telefónica bites on China stake
Already the dominant force in Latin America, Spanish giant Telefónica SA has now turned its attentions to China, where it has shelled out €240 million (US$286 million) to buy a 2.99 percent stake in China Netcom Corp. Ltd. (NYSE: CN; Hong Kong: 0906).

In a filing with the Spanish financial regulator, Telefónica says it plans to raise that stake to 5 percent and seek to develop a relationship with Netcom that could include the joint development of products and services, joint purchasing of technology and infrastructure, and "the exchange and sharing of managerial, technical and operational expertise and resources."

The carrier noted recently that it planned to expand globally and would consider making investments in just about any market except the U.S. The Chinese investment follows Telefónica's takeover of central European operator Cesky Telecom a.s. in a deal that will cost it nearly €6 billion ($7.1 billion) once it takes full control (see Telefonica Buys Cesky Telecom).

FT's NExT step
France Telecom SA (NYSE: FTE) has unveiled NExT (New Experience in Telecom services), "a three-year transformation program" to make it "the operator of reference for new telecom services in Europe." (See France Telecom Launches NExT.)

This involves the launch of a number of new services, such as integrated voice, messaging and videotelephony, and converged fixed and mobile service bundles. The operator is also launching a single portal through which customers will be able to manage their services and accounts, and is creating a single customer support service that will handle enquiries about all its services.

It also became the latest major operator to create a close relationship with Microsoft Corp. (Nasdaq: MSFT), with which it will develop products and services "enabling genuine fixed-mobile convergence." (See FT, Microsoft Develop Services.)

France Telecom is also indulging in some brand convergence. The carrier is extending the Orange brand, currently the reserve of the mobile division, to broadband services, and the name Wanadoo will be phased out. The U.K. is set to be the first country where this will happen.

As part of its plans, the carrier also set some clear targets for customer acquisitions. For example, by 2008 it plans to have 12 million broadband customers (including 6 million in France), and 1 million users of its MaLigne IPTV service. Outside of France and Poland, where it is the dominant carrier, FT sees the U.K., the Netherlands, and Spain as its key growth markets.

And it looks as if France Telecom is set to indulge in some M&A action, as it announced the scrapping of its self-imposed €500 million ($595 million) acquisition cap. But CEO Didier Lombard told a press conference that this didn't signal a return to "very expensive acquisitions. We need to be flexible but remain cautious."

The carrier has recently been linked with a potential move for Cable & Wireless plc (NYSE: CWP), but with the U.K. carrier capitalized at £3.6 billion ($6.3 billion), such a move seems unlikely. Instead, FT may follow the example of one of its rivals for the title of European "operator of reference" -- Telecom Italia SpA (NYSE: TI) has been building a new Roman empire based on broadband (see Italians Prep Big French DSL Rollout and Italians Invade Germany).

Telecom Italia's Turkish delight
But it's not just broadband expansion that Telecom Italia has its eye on. It is part of the Saudi Oger-led consortium that will buy a controlling 55 percent stake in Turk Telekomunikasyon A.S. for $6.55 billion (see JV Buys Turk Telecom Stake).

TI's financial involvement is relatively minor -- it is contributing just $200 million -- but the move safeguards its existing investment in Turkish mobile operator Avea, in which it and Turk Telekom hold a 40 percent stake each, with the remaining 20 percent held by a local bank.

The winning consortium outbid its nearest rival, led by Arab carrier Etisalat, by just $50 million in the race to control the incumbent carrier, which has 19 million fixed line and 4 million mobile subscribers.

Turkey was recently cited by researchers at industry consultancy Point Topic Ltd. as the world's fastest growing broadband market. In the first quarter this year the number of subscribers grew by 37 percent, nearly 180,000 users, to 484,000, leaving plenty of room for further growth in a market where Turk Telekom has been investing recently (see Redback Wins Turk Telekom Deal and Türk Telekom Picks Alcatel for DSL).

Other M&A snippets
British press reports suggest that the long expected merger between the U.K.'s two cable operators, ntl group ltd. (Nasdaq: NTLI) and Telewest Communications Networks plc (Nasdaq: TWSTY), will be announced before the end of July.

Meanwhile, Deutsche Telekom AG's (NYSE: DT) T-Online International AG has acquired Spanish competitive operator Red Eléctrica Telecomunicaciones (RET), known by its brand name Albura, for €61.5 million ($73 million). (See T-Online Makes Spanish Acquisition.) The German carrier plans to ramp up Albura's local loop unbundling plans by expanding the number of central offices in which its own DSLAMs are installed to 400 by the end of 2006 from the current 160.

Also in Germany, the head of Siemens Communications Group, Lothar Pauly, has told German newspaper Handelsblatt that it has no plans to merge with any other major equipment vendors such as Alcatel (NYSE: ALA; Paris: CGEP:PA) or Nortel Networks Ltd. (NYSE/Toronto: NT).

Wales first for 21CN
BT Group plc (NYSE: BT; London: BTA) says the Welsh capital, Cardiff, and its surrounding business district, will be the first region to be migrated from the current British PSTN to the carrier's all-IP infrastructure, the 21st Century Network, or 21CN (see Wales to Get 21CN First and BT Unveils 21CN Suppliers).

About 350,000 lines will be transferred in the second half of next year, with BT saying it will replace equipment in 50 local exchanges and build three of its new "metro nodes." (See BT's 21CN: Metro Partners Under Wraps .)

Whether this is good news for the Cardiff area or not is debatable. While BT says the region will be the first to enjoy the "new generation of compelling, converged communications services" that the 21CN can deliver, it also says it will use the experience and customer feedback from that migration to help it figure out how best to migrate the remaining 30 million circuit-switched lines to IP, a process due to be completed by 2010.

Effectively, Cardiff is the 21CN guinea pig. Well, someone had to go first...

Other European news of note from the past few days:

  • Telenor Picks Siemens, Juniper

  • Huawei Doubles Up at KPN

  • M&A Activities Firm Up BT Global

  • Energis Deal Energizes Xtera

  • BT's Bross: Ethernet Will Deliver

  • Microsoft Wins at BT

  • Ericsson Acquires Teleca OSS

  • Alcatel Wins Polish DSL Deal

  • Alcatel Forms Satellite JVs

  • Easynet Plans UK Expansion

  • Telewest Broadband Launches Teleport

  • BT Uses Telenor for EU Deal

  • Belgacom Launches Siemens IPTV

  • FONS Joins FTTH Council Europe

  • Swedes Test Alloptic GEPON Gear

  • KPN Deploys Cramer's OSS

— Ray Le Maistre, International News Editor, Light Reading

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