HELSINKI, Finland-Jorma Ollila, chairman of Helsinki-based Nokia, has questioned the ability or willingness of mobile telecom companies to strengthen their European operations through strategic mergers and takeovers aimed at market consolidation.
“Having examined the market closely, I doubt very much if there will be a new wave of mergers between telecom operators any time soon. For one thing, the huge amounts of money paid in 3G (third-generation) license auctions will stunt the sector’s development,” said Ollila.
“It is very easy for outsiders to say that indebted firms should merge. But companies, especially in cross-border situations, have their own different cultures and historical burdens. This negates against a new wave of mergers and consolidation in the marketplace.”
Significant high-profile mergers between telecom operators in Europe have fallen sharply since 1990, deflated by volatile equity markets. Many operators are concentrating their resources on pushing sales in a backdrop of ongoing losses and weakened balance sheets.
European merger activity is currently focused on Telia’s acquisition of Finnish operator Sonera. The Swedish operator hopes to close the takeover, the first cross-border deal in Europe between former state telecom monopolies, in November.
“The 3G license auction process has left many operators very short of cash. They have been forced to control spending. This is as true in the United States as it is in Europe,” said Ollila.
On the upside, Ollila said that 50 European and Asian operators plan to introduce multimedia messaging services (MMS), allowing users to send pictures and sound clips, by year-end.
“The sending of picture messages between different networks does not work yet. By year-end, and especially next year, roaming will improve,” said Ollila. “The dynamism of the telecom industry will not come from the fast growth of users, but rather from the services they need.”
According to Ollila, consumers are not overly worried about whether their messages are sent via GSM, second generation or 3G. “What is most important is that the devices and network are easy to use and are practical to the daily lives of people, such as with weather or traffic information in video or pictures,” said Ollila.
Ollila’s comments preceded the company’s third-quarter earnings statement on Thursday. Nokia posted huge gains during the third quarter, earning US$593 million, compared with US$181 million a year ago, and net income per share of 13 U.S. cents, up from 4 U.S. cents.
Overall net sales increased by just 2 percent, to US$7 billion from US$6.8 billion. The company’s Mobile Phones business showed a 7-percent increase to US$5.5 billion. This gain offset a 7-percent decline in its Networks unit, to US$1.5 billion, and a 36-percent decrease in its Ventures Organization to US$87 million.
“I think we are seeing a pick-up in the major markets. We as a company have returned to growth, and there is optimism in the air,” said Ollila on CNBC Europe.
