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Fear and loathing in Euro telecoms market

France Telecom and Deutsche wrangle over wreck of global alliance

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EC Commissioner Erkki Liikanen, who in his declaration of interests for the new allegedly cleaned-up Commission declares membership of the administrative board of the Pori Jazz festival, announced in Geneva yesterday that the regulatory regime in Europe is causing the tail to wag the dog, and that the commission would issue a policy document later this month to address the shortcomings. Liikanen - officially dubbed commissioner for enterprise and the information society, but also in charge of telecoms policy - identified three key issues that were holding back liberalisation: high rates for local calls; lack of measures to discourage the overwhelming dominance of "local incumbents" (he didn't say France Telecom) to unbundle the local loop; and inconsistent regulatory frameworks in member states. Liikanen noted that although computing power is doubling every 18 months, transmission capacity was doubling every 12 months. He also thinks that there should be no regulatory distinction between voice and data traffic. As a Finn, it was almost compulsory for him to point out that in the early 1990s the Commission had forecast 40 million mobile subscribers by the end of the decade, when in fact there are more than 120 million today in the EU. According to an unidentified forecast, he thought that worldwide in 2004 there would be 600 million mobiles equipped for e-commerce. Last week, Sprint said "I do" to MCI WorldCom, in exchange for a promised dowry of $129 billion. For the Americans, this means there would be one less competitor in the long-distance market, if there are no regulatory objections to the merger. In Europe, this mega acquisition proposal has in its turn has concentrated thinking on some significant moves, one of which was that France Telecom's CEO Michel Bon said that the company was seeking to buy the stake in the loss-making alliance Global One held by Sprint and Deutsche Telekom - if the price was right - within two months. This would give the French the doubtful prestige of running some of Coca-Cola's telecoms. In order to maintain some price leverage, there are rumours that France Telecom might go after alternative companies like Equant instead. It is expected that France Telecom will sell its 10 per cent stake in Sprint for around $9 billion, since it does not like the idea of its holding being diluted to around 4 per cent if the MCI WorldCom deal goes through. Global One, which offers multinational voice and data services, has been under a cloud for some time, although Global One board member Fred Rucker said he thought the company was worth more than $10 billion. It was set-up three years ago by France Telecom, Deutsche Telekom and Sprint when France Telecom and DT were buddies and needed a US partner. It wasn't intended to be loss-making, nor was it expected that France Telecom and Deutsche Telekom would be at each others' throats all the time, but that's how it worked out. Since Deutsche Telekom made a bid for Telecom Italia without informing France Telecom, with whom it was supposed to be in an alliance, the relationship has been very chilly, with both companies seeking to sell their small stakes in each other. France Telecom is currently seeking breach-of-contract compensation from Deutsche Telekom through the courts. The move was seen as an effort by Deutsche Telekom to shake itself free of commitments to the French. Deutsche Telekom is rumoured to be considering a bid for BellSouth, the Dutch Telekom operator KPN, or Energis. Ron Summer, CEO of Deutsche Telekom, said France Telecom could have its stake in Global One "for a good price", according to a comment published today in the magazine Focus. This wouldn't be a setback for Deutsche Telekom, he said, because the business wasn't dependent on the project. Deutsche Telekom also planned to sell its 10 per cent stake in Sprint. There is speculation as to what Deutsche Telekom would do with the cash for these disposals, with one possibility being to acquire some or all of SBC Communications, according to an unnamed source quoted in Welt am Sonntag. William Esrey, CEO of Sprint said that the company would sell its Global One holding to one of the other two shareholders. Meanwhile France Telecom has grabbed a $1.86 billion 17 per cent stake in E-Plus Mobilfunk (from Vodafone), the number three German mobile operator with a 16 per cent market share, and is likely to acquire it completely. Veba and RWE hold around 60 per cent, and BellSouth 23 per cent. There's an element of tit-for-tat about the move, since the company competes with T-Mobil, Deutsche Telekom's mobile company. France Telecom is also launching a new backbone, it said yesterday at Telecom 99 in Geneva, and has splashed out 300 million euros so far to link Paris with London and Geneva - with Madrid and Barcelona being added next month. The backbone was originally to have been a Franco-German venture, but the Italian manoeuvre by Deutsche Telekom stopped that. With the French and Germans trying to build separate international telecom empires, both are likely to fail in their ambitions to become major global players. Of course, whether these expansion plans would be funded within European competition rules is another matter. ®

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