European telecoms: light at the end of the tunnel

Europe's three largest telcos are all showing signs that market conditions are improving.

After a torrid two years of cutbacks, job losses and asset sales, there are signs that the economic gloom may be easing somewhat for the 'big three' European telcos: Deutsche Telekom, France Telecom, and BT. Helped by a reduction of debt and the uptake of broadband, all three are exhibiting signs that conditions are improving.

Deutsche Telekom has recently announced that it is to acquire Polska Telefonia for €1.1 billion. This is its first acquisition for nearly two years after a spending spree during the boom years meant that DT racked up a crippling debt burden.

DT already owned a 49 per cent stake in the Polish mobile player, but was keen to gain full control because it is Poland's largest mobile operator, profitable, and offers an attractive route into the underdeveloped east European mobile market. Poland is one of the most populous states in eastern Europe, and has a mobile phone penetration rate of only 40%.

France Telecom's (FT) return to financial health has been signaled by its decision to gain full control of Orange. It currently holds an 87 per cent controlling stake, with the remaining 13 per cent held by minority shareholders. It is offering 11 of its own shares for 25 Orange shares in an all-share deal thought to be worth approximately €7.1 billion.

Only a year ago FT was on the brink of collapse after a spending spree left it facing a debt of E68 billion. However, new management, a controversial cash injection by the French government, and a restructuring program have helped put it on the road to recovery.

As Europe's first privatized carrier, BT has often led the continent both in its mistakes and its recovery program. BT has taken giant strides away from its debt-ridden past and is seeing a sharp increase in profit and the growth of a new revenue stream from broadband Internet access.

However, it still has the shadow of a billion-pound pension fund deficit hanging over it. BT's one area of weakness is the lack of a mobile operation (it spun out its mobile network as mmO2 in 2001), but it is intent on becoming a virtual mobile operator.

In the end, the 'Big Three' are still facing problems, mainly from the decline in fixed-line calls. However, with greater uptake of broadband, and the reduction of debts, all are approaching the future with a degree of optimism.

Recommended research

Reuters Business Insight: "The Wireless Outlook"