Swedish Carrier Suffers Setback
One sign of distress occurred last week when one of the pioneers in this field, B2 Bredband AB, was forced to postpone its planned IPO.
At the time (October 9), B2 blamed “unfavorable market conditions” for its decision to shelve the sale of 29 million ordinary shares and American depositary shares, at a price of between 115 and 165 Swedish Krona (US$11.50 to $16.50) apiece (see Swedish Carrier Shelves IPO). But financial analysts in Sweden say the problems go deeper than that.
The Swedish financial community simply didn’t like what it saw in B2’s prospectus, according to Mattias Gredmark, a financial analyst with MeritaNordbanken Group. That’s partly because it lacked the usual forecasts of revenues and profits found in Swedish prospectuses: B2 was going for a dual listing -- on Nasdaq and on the Stockholm stock exchange -- and U.S. regulations forbid the publication of financial forecasts.
The big problem, however, was the price range. According to one analyst, who requested anonymity, it was “completely out of whack” with average revenue-per-user forecasts quoted in research by investment banks in the IPO syndicate. In his view, it showed that B2 wouldn’t turn cash-flow positive for at least ten years -- which, of course, made the carrier an unattractive investment.
B2’s business model also worries some analysts. It’s offering 10-Mbit/s Ethernet connections to residential users at a big loss -- a mere 200 Krona ($20) a month -- in the hopes of grabbing a big share of the market for residential broadband services. The idea is that B2 will make its money from the TV, software rental, and other services provided over its infrastructure. In order to do this, however, it will have to prevent customers using services that don't have B2's blessing -- a concept that runs counter to the open culture that’s made the Internet such a success.
B2 may find it increasingly tough to pursue this strategy as competition in the residential broadband market heats up in Sweden. Although B2 was first to announce plans to roll out broadband services to millions of homes, it’s now been joined by Telia AB, Sweden’s incumbent carrier, and United Pan-Europe Communications (Nasdaq: UPCOY), Europe’s biggest cable conglomerate, and a bunch of smaller players.
Competition could get even hotter next year, when a European regulation is scheduled to come into force that could open the floodgates on carriers offering broadband services over Telia’s copper access networks, using DSL (digital subscriber line) technology.
Bo Lindgren, B2’s CTO, argues that DSL doesn’t deliver proper broadband connections, which he defines as at least 10 Mbit/s in each direction. DSL delivers 1 or 2 Mbit/s in one direction and far less in the other, making it unsuitable for many applications, notably TV. If DSL and cable modems (another lower bandwidth technology) are counted as broadband, however, Telia appears to have overtaken B2 in terms of orders for connections. Telia has 650,000 contracts, and its cable subsidiary has another 200,000. In comparison, B2 had 230,000 contracts at the end of August, according to its IPO prospectus, with only 30,000 homes already connected.
B2’s deployment figures are a long way adrift from its initial target, set more than one year ago, of wiring up 1.2 million homes within a couple of years. Jonas Birgersson, B2’s founder and chairman, has taken a lot of heat for continuing to cite such “aggressive” targets, according to one financial analyst, who asked not to be identified. “He’s lost a lot of credibility,” the analyst contends, and that's hurt the company's standing. B2 also ought to scale back its plans for international expansion, he says. “Having a network in Sweden and Norway makes sense, but going into Germany and Italy is just too much.”
All the same, B2 is far from being a lost cause. At the end of August it had 1.7 billion Krona ($170 million) in cash and 4.5 billion Krona ($450 million) in vendor financing. It also has some heavyweight backers, including NTL Inc. (Nasdaq: NTLI), which owns 25 percent of the company, and Intel Corp. (Nasdaq: INTC). The consensus is that B2 went for an IPO too early, but there’s still plenty of scope for it to try again.
-- Peter Heywood, international editor, Light Reading http://www.lightreading.com