Telco 2.0 had the opportunity to attend Telecom Finance last week, a conference for investors, bankers and advisors working in the telco industry. Here are some of our impressions of the key themes…

1) Fear and loathing

Everyone was putting on a brave face and trying to talk up M&A deals, but there was an undercurrent of dread. As one of the speakers said, “the Macquarie deals aren’t coming back”; finance for big LBOs and mergers is no longer available, and you’ll struggle to get big network upgrades in developed markets funded. Further, whatever major deals do manage to get financed are likely to come on very strict terms. The days when infrastructure funds, like Macquarie, was able to borrow dirt cheap and take out equity from their investments have gone with the crisis.

2) The vital importance of holes in the ground

There was a lot of interest in holes - the civil engineering infrastructure. Specifically, everyone at TelecomFinance was keen on buying towers, rights of way, dark fibre etc, as well as promoting network-sharing deals. Of course, these are the kind of low-risk projects, backed up by steady cashflows as well as a near-indestructible asset base, that are likely to be feasible in a traumatised financial environment. And they are also large. No wonder the financiers like them. But it wasn’t just that - access to ducts, towers, and passive infrastructure generally was highly popular as a strategy for FTTH and LTE deployment and also for managing regulators.

Continue reading "Finance 2.0: nice assets, but where's the business model?" »

Posted at 03:31 PM | Link to this article | Add a comment

Summary: Orange and T-Mobile UK are merging, thereby consolidating two of the UK’s five mobile operators. What are the likely benefits and consequences, and the implications from an investor’s viewpoint? This is a Guest Post from Arete Research, a Telco 2.0™ partner specialising in investment analysis. The views in this article are not intended to constitute investment advice from Telco 2.0™ or STL Partners. We are reprinting Arete’s Analysis to give our customers some additional insight into how some Investors see the Telecoms Market. “Saucisse de Strasbourg” FT and DT cooked up their very own knackwurst with the planned merger of two (not very) hot dogs —Orange UK and T-Mobile UK. A deal — in fact, any deal — to consolidate the UK wireless market has to be applauded, given UK market EBITDA margins of only ~22% in ‘08, now heading south again as a result of MTR cuts. DT should have exited the UK long ago (see DT: Turning a SuperTanker, Dec. ‘06), but stubbornly hung on, believing in the potential for data growth.

Continue reading "Orange / T-Mobile UK Merger: An Investor's View" »

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This is the latest in our acclaimed series of articles on the global financial crisis and its impact on the Telecoms-Media-Tech sector. With estimates of losses in the value of financial assets in 2008 now at $50 trillion (c.70% of global GDP), and financial stress and unemployment rising, our previous interpretations of the prospects for telcos in the financial crisis seem open to challenge as being overly optimistic. However, there is little evidence from company results of an impending crisis in demand for telco services, at least for now. Accordingly, telecom sector relative performance continues to be strong, particularly during the worst of the market downdraft. However, investors appear to be increasingly selective in defining what differentiates one telco from the next. Our attendance at a recent telco innovation conference leaves us convinced that there is a story waiting to be told around research and innovation - if the pieces can be properly aligned.

Continue reading "Credit Crisis, Part 8: Show Us Your Labs" »

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Below is the seventh article in our series on the Credit Crunch and its effect on the TMT sector (previous here). In 2008, venture capital investment flows in the US in Q4 fell by a quarter, private equity deal flow in Europe was down 59%, and hedge funds globally lost $582bn. Arguably, there are better times to seek funding for an innovative new idea. However, innovation is high on the agenda of government fiscal stimulus packages, which will be key determinants of economic growth, and entirely new industries are taking shape. If telcos want to exploit a new ecosystem, they will need to actively invest in its creation - a concept which some cash-rich rivals are already demonstrating they understand…

Continue reading "Credit Crunch Update (Part 7): If Telcos Don't, Cisco Will" »

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In 2009 we’ll be spending more time analysing the results of some key players in the Telco 2.0 ecosystem. Trying to give our readers a different perspective on the announcements. We start here with Apple. In a Telco 2.0 article from earlier in January - “Apple blows a hole in the Mobile Music Landscape” - we analysed recent changes to Apple’s business model around music. Our conclusion was that the mobility premium for content sales would disappear creating challenging times for mobile operators who see music as a growth opportunity. In this article we provide a Telco 2.0 examination of the state of Apple’s overall business (iPhone, iPods, CPUs, Content, Retail), based on their Q4 earnings call yesterday. In summary, it’s a good time for Steve Jobs to be taking a break. Here’s why:

Continue reading "Apple Earnings Call - Music no longer a growth engine" »

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Below is the sixth article in our series on the Credit Crunch and its effect on the TMT sector (previous here). We note that telecom stocks are weakening versus the market, but opportunities look likely from government fiscal stimulus packages, especially around ‘Smart Grids’. Anyone expecting a change in tone from the economy to start 2009 was wildly optimistic. The situation is deteriorating, and telecom will come under pressure. The stock market’s feeble attempt at a rally over the past month has landed telecom in third quartile, in keeping with our views. However, telcos should resist the knee-jerk reaction to cut personnel and investment - there are interesting opportunities on the horizon from fiscal stimulus programs. Remaining focused on, staffed for, and invested for the longer term opportunities is key.

Continue reading "Credit Crunch (Part 6): Happy New Deal!" »

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This post is the fifth in our series on telcos and the credit crunch. The audience at our November event seemed comforted by the appeal which the capital markets currently find in telecom as a defensive sector. However, we also stressed that this is likely to be a fleeting phase, as underlying concerns about the industry’s ability to generate sustainable value will return. The key challenge is to invest now in the sort of transformation which will allow the industry to emerge from the current crisis with a different story, the “Ghost of Telco Future” rather than the “Ghost of Telco Past”. We look below at three examples of companies which made bold investments in new business models during periods of pessimism and disruption, and emerged transformed.

Continue reading "Credit Crunch (Part 5): Escaping the Ghost of Telco Past" »

Posted at 04:36 PM | Link to this article | 1 comment

Just when I thought I was out, they drag me back in: Siemens shows a concept phone using the “big touchscreen” iPhone design meme to include a large solar panel in the device. Nice; but hasn’t Siemens given up making phones?

Continue reading "Ring! Ring! Hot News, 20th October 2008" »

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In Today’s Issue: Crunch crunches Chinese corporate creativity; Nextel spinout shaky; Sprint execs “industry’s most overpaid”; WiMAX smartphone leaked; VZW starts charging for bulk SMS delivery; IfByPhone understands your call centre campaign; vendor-pays data is here; RIM’s AppStore for enterprises?; Comcast gets social TV; Vodafone buys more of Vodacom; IBM: still has money; Indian cellsites get fuel cells; MBNL-BT backhaul superdeal; xG shenanigans; yet another security nightmare at DTAG; GSMA without the GSM; mobile filmmaking to fight the Taliban. scary! This week’s main theme was telcos calling off planned corporate action in the face of the financial crisis; Huawei, like so many other vendors, has been thinking of getting rid of its handsets business, a low-margin job better left to cheap Chinese ODMs…hold on, some of us remember when Huawei was a cheap Chinese ODM. But this week, the sale was put on indefnite hold for fear someone might bid one euro and get it.

Continue reading "Ring! Ring! Hot News, 13th October 2008" »

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Two weeks ago we presented a very gloomy picture of the developing stress in the financial markets, and its likely implications (positive and otherwise) for telcos. Two weeks is an awfully long time in today’s markets, and while it hardly gives us pleasure to acknowledge that much of what we previously envisaged is now playing out before our eyes, it probably makes sense to revisit the topic. In short, things have gotten much, much worse since our original post only two weeks ago. Unless you’ve been hiding in a cave in Afghanistan, you have probably noticed the fitful attempts in the US to pass an economic stabilization package, to the tune of $700bn, with a lot of enhanced corporate governance provisions and regulation attached. The independent investment banks once known as the “Bulge Bracket” no longer exist, and the stagnation of the credit markets is now resulting in a wave of nationalisations, quasi-nationalisations, and government-orchestrated private sector bailouts in Europe, as well as in the US. Business confidence in Europe is at its lowest ebb since the shock and awe of 9/11, and investor concern over the health of commercial banks, as reflected in a flight of capital into Treasuries, is at its greatest point since the Great Depression.

Continue reading "Credit Crunch - Silver Lining for Telcos? (Part 2)" »

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