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European Research Notes |
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Convergent Communications Europe
by Camille MendlerEvent Summary
Equipment manufacturer Ericsson expects to boost cash flow by US$750 million, the company announced on December 29. The announcement follows a sale and leaseback deal for software testing equipment in the United States and Sweden brokered with an unnamed group of financial institutions.
Market Impact
The deal comes at a crucial time for Ericsson, which is trying to hold off going to market for further funds. Current investors are concerned about diluting its current share price any further. Although fourth quarter results are not yet available, there is a chance that the equipment vendor, which made a net loss of $1.2 billion in the first three quarters of 2001, may have met commitments to go back into the black by the end of the financial year. It has already cut one fifth of its workforce to reach this goal, sold off certain property assets and also some vendor financing interests.
Conclusions
- Ericsson is still walking a knife edge in terms of profitability like many telecommunications equipment vendors. However, as one of the industry's giants, who will catch the vendor if it falls? Although mergers and acquisitions have been widely predicted, the field of suitors is narrowing.
- Ericsson's whittling down to core interests in mobile and metro areas is eminently sensible to concentrate the company's strengths. Its founding membership in the Ethernet in the First Mile Alliance along with vendors like Cisco and Intel may well pay dividends.
- Ericsson's partnership efforts with complementary companies, like Sony and Compaq, may be loss-making in the short term, but are a strategically sound approach to reduce risk.
Wireless/Mobile Europe
by Farid YunusEvent Summary
Though the final numbers are still weeks away, hints are already being dropped by high street retailers across Europe that mobile phone sales figures during the Christmas period are likely to disappoint.
Market Impact
The only surprising aspect of the mobile market in recent months has been the degree of coverage being given to the fact handset sales are declining. With seven out of ten people now owning a mobile phone in most European markets, the only way to increase penetration further would be to hand them out in delivery wards and kindergartens.
Conclusions/Recommendations
The mobile market is now entering a new phase and the remaining avenue for continued volume growth will be replacement sales. Many hopes are riding on the 2.5G/3G market and new handsets are gradually becoming available. But technology for its own sake will not keep the industry afloat. Owning the latest phone is often a sufficient incentive for some consumers, but to gain a critical mass of next-generation users more must be done to encourage the upgrade, from improving the range and diversity of available models, to providing compelling and useful content. More might have been achieved this past Christmas if the data services, billing platforms, roaming agreements, and handsets had all been in place. The last golden opportunity to migrate a large proportion of user to GPRS data services has been missed. It will now be an uphill struggle through 2002.
Wireless/Mobile Europe
by Philip TaylorEvent
On January 2, Finnish operator Sonera announced that it had "opened" its UMTS network in four cities in Finland.
Market Impact
Sonera stressed, however, that third-generation services would not be made available to its subscribers until later in 2002 due to the lack of available dual-mode GSM/W-CDMA handsets.
Conclusions/Recommendations
- As was the case with GPRS during 2001, it appears that this year will see Europe's network operators and device vendors continue to paint one another as the more culpable for delays in the commercial launch of 3G services.
- While Nokia has committed to shipping W-CDMA devices during the second half of this year, we believe that—as with GPRS—this will come only during the latter part of 2002 and in limited volumes.
- However, 2002 will—or should—be more about making GPRS an attractive proposition to consumers. In this respect, much work still must be done in terms of pricing, marketing, and content availability. Delays of 3G have already been factored into the financial expectations of equity analysts in the wireless sector and Europe's vendors and operators should now focus on putting their finger-pointing days behind them.
Convergent Communications Europe
by Amy RodgerEvent Summary
Kenya's government rebuffed yet another bid to privatize incumbent operator Telkom Kenya in the week of December 31. The government ended another round of talks with the Mount Kenya Consortium (MKC), a group of potential investors bidding for a 49% stake in the state-owned operator. The alleged financial and technical weaknesses of the group, which includes South African power utility Eskom and Zimbabwean operator Econet, were cited as reasons for the failure.
Market Impact
Kenya's government has held several rounds of talks since the first tender was received for Telkom Kenya in April 2000. MKC made an earlier bid of US$305 million, rejected as too low, but its revised bid of US$325 million (including MKC management control) has now also failed. Budget plans for 2000–2001 suggested the government sought up to US$350 million, but MKC is steadfastly denying that it is a poor contender to take over the operator and maintains that its offer is a good one.
At the same time, the Kenyan government is facing considerable pressure to secure private investment because international donors, such as the International Monetary Fund, have cut off funds due to concerns about institutional corruption. By selling a stake in Telkom Kenya, the government would demonstrate commitment to privatization and economic reform.
However, the Kenyan government says it is also concerned that MKC lacks a major fixed-line operator required to support Telkom Kenya. Nevertheless, this is only one of a number of excuses the government has used to delay privatization. Other options may include retendering of smaller stake, selling some shares on the stock exchange, or introducing a management consultant team to restructure the company.
Recommendations
- The Kenyan government must inject cash into Telkom Kenya as soon as possible to renew and boost its infrastructure.
- The government must consider all options, including the possibility of selling a smaller stake and offering shares on the open market.
- This sale is fundamental in the government's steps toward privatization and to improve its reputation with international funding organizations, and by implication, the country's economic stability.
Residential Premises Provisioning Software: Automating the Residential Broadband Experience
tebv2n17, Report, December 2001, by David HawleyExploring the Connected Campus: Strategic Opportunity for the Higher Education Market and E-Learning Service Providers
cmcv18n17, Report, December 2001, by Aurica YenWeb Hosting Update: From Consolidation to Rationalization
isev3n17, Report, December 2001, by Scott SmithWholesale Services in Canada
cmsv5n15, Report, December 2001, by Mark QuigleyExploring CTAF® 2001: Bundles and the Canadian Consumer
cmsv5n16, Report, December 2001, by Tosia MankaMobilizing IP: There's a Lot More to 2.5G and 3G than the Air Interface
wmtv2n17, Report, December 2001, by Phil MarshallCustomer Care Outsourcing Trends: New Delivery Models to Weather New Economic Times
crmv3n16, Report, December 2001, by Devon SheaDigital Cable: New Services Set the Stage for Soaring Growth
mesv5n20, Report, December 2001, by Michael GoodmanThe Enterprise Wireless Data Application Opportunity: A Segmentation Analysis
wmsv2n17, Report, December 2001, by Eugene SignoriniBack to Table of Contents
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