Upturn for telecoms

26 Feb 2004

Two years ago as the cold winds of change swept through the financial world it looked as if the telecoms meltdown would dwarf even that of the dotcom tulip auction.

Ireland, which saw 22 data centres established in Dublin and thousands of kilometres of fibre spread under the capital’s roads by brash new telecom players, could not escape the doldrums as power-suited and public relations manicured chief executives succumbed to the inevitable rounds of redundancies and company car seizures. Out of the 22 data centres, less than 10 were still operating with customers, and out of the dozens of telecoms companies that came to market in 1999 with crisp new licences, less than a dozen were offering services of any kind.

2004 has begun with a different kind of picture, especially in Ireland. The ESB has just gone live with a €50m, 1,300km nationwide fibre optic network; both Vodafone and O2 are claiming that significant portions of their 3G networks are live; new player Hutchison 3G Ireland is working with Esat BT and ESB to construct its network; and other players such as Smart Telecom are pledging new jobs and investment on the back of the lighting up of the Government’s 19 metropolitan area networks (MANs). The furore surrounding Eircom’s recent price hike forced the Minister for Communications, Marine and Natural Resources Dermot Ahern TD (pictured) into action and the first two months of the year have been marked by unprecedented policy actions.

In an opening move, Ahern ordered the Commission for Communications Regulation to have its wholesale single billing product operational by the end of March. This was swiftly followed by a directive ordering Vodafone and O2 to host additional mobile operators on their networks, a move that will ultimately force down the price of mobile services.

The Irish situation on the telecoms front is by no means indicative of the overall global telecoms perspective. The Irish situation can be likened to the collective release of energy after considerable inactivity, a collective exhaling of breadth. People may be able to go after cheaper telecom services. Finally, the vision of broadband in every home by 2005 might be attainable after all. While the Irish situation is not indicative of the global picture it is no less colourful.

It seems that globally the telecoms industry is still struggling with mountains of debt and is licking its wounds sustained in 2001. Telecoms equipment manufacturers are reporting varying financial results. Cisco Systems recently saw its second quarter sales increase 14.5pc to US$5.4bn, while Ericsson saw a 1pc decline on sales in its fourth quarter to €3.9bn on the year. This didn’t stop Ericsson boss Carl-Henric Svanberg from declaring that “the mobile infrastructure market has definitely stabilised, traffic continues to grow and operators are increasing their focus on network quality and capacity”.

In Northern Ireland the mixed feelings in the telecom equipment business has resulted in 360 jobs hanging in the balance as Nortel Networks mulls over outsourcing all of its manufacturing to Flextronics’ Far Eastern operations in a potential US$2.5bn deal. Mixed? Yes. Progressive? That depends on where you are standing.

In the mobile world, all eyes are on Vodafone. The company has confirmed that it is weighing up a potential €32bn takeover of AT&T Wireless, the third biggest mobile player in the US market. The UK headquartered Vodafone will be competing against Cingular Wireless, which has put in a bid of €23.8bn for AT&T Wireless. If Vodafone is successful in its bid, it will consolidate the company as one of the largest, if not the largest, mobile companies in the world. To make the bid succeed, however, Vodafone would need to sell its 45pc stake in Verizon to satisfy regulators.

In another industry-shaping move, the world’s biggest mobile equipment manufacturers Nokia has stepped up its battle with Microsoft for the hearts, pockets and mobiles of the world’s punters, by taking control of the Symbian, the leading developer of smart phone operating systems. The Finnish mobile giant has revealed plans to buy 31.1pc of Symbian from Psion for an estimated €198.8m to take its stake to 63.3pc.

The move will give Nokia more influence over Symbian’s development as it battles to stop Microsoft gaining the same dominance in mobile software as it has in PCs. Symbian has 95pc share of the fast growing smart phone market. However, analysts have warned that there could be a backlash if Symbian was seen as Nokia’s proprietary operating system, rather than an open standard with broad support in the handset manufacturing community. Symbian’s other shareholders include Nokia rivals Sony-Ericsson, Samsung, Siemens and Panasonic.

Having lost billions in shareholders’ cash since the 2001 meltdown, it seems that the telecommunications industry still has the shareholders’ unswerving confidence as the cash to fund all of these major developments is evidently still available.

According to IDC, worldwide telecoms services spending will surpass the US$1 trillion mark for the first time in 2004, helping the industry to re-establish its momentum. According to IDC’s Worldwide Telecoms Black Book, worldwide telecoms spending in 2004 will be 4.4pc greater than in 2003 and will enjoy a compound annual growth rate of 4.7pc from 2003 to 2007.

“Data offerings will play an important role in driving overall telecom growth, particularly IP-based [internet protocol] services such as broadband internet access and IP virtual private networks,” says Rena Bhattacharyya, program manager, worldwide telecom Markets at IDC. “Nevertheless, the voice market will continue to be a key part of the industry, and will generate more than two thirds of the industry’s revenue throughout the forecast period.”

By John Kennedy