HELSINKI, Finland-For a market with a well-deserved reputation as the most dynamic and innovative of Europe’s telecom sectors, one could easily think that traditional Scandinavian confidence is in a state of early winter hibernation. The customary drone of deals, domestic and cross border, has softened. The discussion around board-room tables has shifted from expansion to internal reorganization.
Even before 11 September, the buzz words used by chief executive officers (CEOs) of Nordic operators were “belt tightening” and “containment.” Dispatched to memory is the ambitious initiative by Sweden’s Telia earlier this year to restructure the Nordic telecom market through a merger with Sonera of Finland and Denmark’s TDC.
With merger plans a distant prospect, Telia is beginning to make waves in the Baltic republics and in Russia, a sure sign that it has put pan-Nordic consolidation on the back burner. Telia now has decisive plans to beef up investments in Russia and Baltic-rim countries through strategic co-ventures, acquisitions and network investments.
“Russia and the Baltics are where we find most potential for growth,” said Kenneth Karlberg, president of Telia Mobile. “Telia would like to increase the company’s shareholdings to at least 51 percent in six telecom companies in these markets.”
Significantly, Telia wants to acquire Sonera’s chief telecom assets, including network operations and subsidiaries, in Russia, Lithuania, Estonia and Latvia. Such a deal would be quite tempting for Sonera, whose tight finances and weakened credit rating are forcing it to divest non-core business areas.
All Nordic companies are delaying nonessential network investments and planning labor cutbacks. Telenor is expected to shed 1,100 personnel, Telia 3,000, Sonera 1,000, and TDC 700. However, in all cases, mobile and wireless technology services units will avoid the main swing of the corporate ax; areas targeted most will comprise fixed-line operations and administration. Telenor’s interest in Danish telecom Sonofon, which it co-owns with America’s BellSouth, is also reported to be waning.
“By reducing our payroll costs, Sonera aims to eliminate overlaps and restore profitability. All Nordic telecoms are in the same boat,” said Sonera Chairman Tapio Hintikka.
Although the universal downturn in the global economy has sapped much of the energy from the cross-border investment plans of Nordic telcos, a strong undercurrent of focused activity remains. Telenor has set out to become Scandinavia’s biggest wireless broadband services provider and has made no secret of its interest to acquire Swedish corporations Bredbandsbolaget and Utfors.
“Within a few years, we will be the No. 1 broadband corporation in the Nordic region. We will consider all acquisition opportunities when and as they arise,” said Per Tengblad, head of Telenor Broadband in Sweden.
3G’s effects
On the third-generation (3G) side of their businesses, Telia, Sonera and TDC are expected to reduce exposure to international projects in coming months. Sonera and Spanish partner Telefnica entered an agreement with E-Plus to co-build a 3G network in Germany. Both operators hold 3G network licenses in Germany. The agreement was concluded with KPN, E-Plus’ Dutch parent.
Sonera stands to save US$685 million in a shared network, although its eventual investment is likely to run to US$2 billion. The overall cost of a single network start-up is estimated at US$6.5 billion. As KPN is even more heavily indebted than Sonera, the cost savings achieved through cooperation would be welcome to all parties.
The agreement with E-Plus does not rule out cooperation with other operators. “Preliminary discussions have been held. One name that has been mentioned in the markets as a possible new partner is Vodafone,” said Sonera Vice President Nina Siitari. “Of course, costs could be further reduced if additional operators joined a network cooperation.”
German authorities decided in June that license holders could cooperate in constructing networks. Group 3G and E-Plus are to begin work on the shared network during the first half of 2002.
International investors have historically looked to Sweden to determine the health or otherwise of Nordic markets. Investors will be concerned at fears in Sweden that mobile 3G networks, the first of which are due in 2003, could be delayed because of weak demand.
“We could face a serious mismatch between demand and supply for new products,” cautioned Leif Jonsson, head of power and telecom company Vattenfall’s 3G unit. Vattenfall and associate Birka Energi intend to use their power relay networks as springboards to build new stations for 3G networks, offering masts, antennae, maintenance and electric power to telecom operators.
Telia and TDC, which each secured one of the four 20-year 3G licenses in Denmark in September, are likewise troubled by having to divest further assets to pay for 3G networks. Telia and TDC paid US$173 million for each license, significantly more than expected.
Despite retraction from major investments, Nordic operators are keenly aware of the need to maintain pace with a fast-changing pan-European marketplace. Erkki Liikanen, the European commissioner responsible for enterprise and the information society, listed three main problems facing the Nordic and European wireless industries-the downward trend in high-tech and telecom stocks, the high costs paid for 3G licenses and the uncertainty of the untested 3G applications marketplace.
“Despite these problems, the telecommunications sector is still one of the most dynamic of the IT industries, contributing about 12.5 percent in revenue terms to the European telecommunications market last year. Wireless effectively means jobs in today’s Europe. It is critical that the market for 3G is fostered,” said Liikanen, Finland’s most senior bureaucrat at the European Union (EU) level.
Conspicuously, Liikanen’s thinking accurately reflects the wishes and needs of Nordic telecom companies. The European Commission is taking a number of initiatives to ensure that 3G is a success in Europe. The EU’s three-step leg-up includes facilitating deployment of 3G services, setting a flexible regulatory framework and supporting future wireless services.
2001 has proven to be a year of two halves for Nordic operators. The surge in takeover activity was followed by a sharp, sudden slowdown when companies moved to deal with the harsh realities, and attached risks, of operating in a global environment. In 2002, the only certainty will be uncertainty.
“There is no guarantee that either TDC, Telia, Sonera or Telenor will exist, as we know them now, in 2002. SBC (Communications) wants to sell out of TDC, and BellSouth may also sell its interest in Sonofon. We may see a series of raids by major global players on the Nordic telecoms, with Deutsche Telekom and France Telecom prominent in the pack,” said Henning Myres, a senior telecom analyst with Helsinki-based investment bank Abo Ventures.
