|
France Telecom's 'Bon' deal
|
 |
May 31, 2000: 1:07 p.m. ET
France Telecom's chairman has rebuilt status of company on global stage
|
LONDON (CNNfn) - First stop Europe, then the world. The ability of France Telecom Chairman Michel Bon to confound his critics and bounce back with the deals to rebuild its status on the global stage marks a sea change from how investors viewed the company just five months ago.
The company's £26.5 billion ($40.3 billion) agreement, announced Tuesday, to buy Orange, Britain's third-largest mobile operator, fills a gap in France Telecom's arsenal and will make it Europe's second-largest cellular player after Vodafone AirTouch.
The purchase puts France Telecom in prime position to push for licenses to provide new-generation mobile-phone services. The revenue and earnings potential of the highly sought-after licenses - thanks to the fast Internet access and data services they allow -- is expected to compensate for a declining share of the market for conventional fixed-line calls amid increasing competition at home.
The Orange deal will cut the French state's stake in the firm to 54 percent, and although France has not liberalized its phone industry as quickly as other European countries, analysts are quick to note the increasingly aggressive approach that Bon and his colleagues are taking.
"They are certainly bucking their ideas up," said Raymond Hill, a telecom analyst at credit rating agency Duff & Phelps in London.
France Telecom has rebounded from what, just five months ago, looked like an isolated position as relations with its chosen global alliance partners soured.
Franco-German pact crumbles
Deutsche Telekom's decision to pursue an ultimately unsuccessful bid for Telecom Italia in May 1999 consigned the Franco-German alliance to the dustbin, because it threw up a potential clash with the erstwhile partners' existing Italian mobile joint venture, Wind. This was swiftly followed by France Telecom's failure to bag German mobile operator E-Plus, when Royal KPN of the Netherlands tabled the winning bid.
The demise of the Global One partnership with Telekom and Sprint appeared to set the seal on a miserable year for France Telecom's global ambitions. In fact, that setback provided the catalyst for the French firm's recovery.
Bon bought out his partners in the loss-making business telecom venture in January. With greater control allowing Bon to give the venture more strategic focus than had been possible under three-way ownership, the French player now has its own international platforms, through Global One and an extension of the Orange brand outside Europe to pursue its ambitions, something that its estranged German rival still lacks.
 The Orange deal is set to trigger a spate of deals to extend its international reach. Analysts seem to believe that the transactions will support a share price that, while one-third below its March peak, remains more than double its year-ago level, outperforming both the Paris market and its European peers.
Hill, like his counterparts at Moody's Investors Services, said he plans to put France Telecom's (PFTE) creditworthiness under review, and may cut his rating of the company's ability to ensure debt repayment. That's partly because he expects the company to take on more debt as it makes new acquisitions, but also reflects declining confidence in the cash-generating abilities of former national telecom monopolies such as British Telecommunications (BT-A) and Deutsche Telekom (FDTE) as deregulation and increased competition bite.
Hans Snook, who will remain as chief executive of Orange under France telecom's ownership, has made no secret of his desire to penetrate the U.S. market. Bon, however, said this week it was important to establish a firm footing for the group's European presence, particularly in third-generation mobile services.
A telecom supermarket
Such ambition suggests the company has a long shopping list - and equally, may lead to "For Sale" notices being slapped on just as many businesses.
First, the cost of the upcoming sale of new-generation mobile licenses in its home market may spiral. The French government, which will award the licenses this year, said until recently that it planned to award them to selected operators - which would surely have included France Telecom --without pitting them in a bidding war against one another. More recently, though, France has indicated that it might, after all, auction the licenses. When the U.K. government held an auction of five such permits earlier this year, the most sought after license fetched almost $9 billion. Many times the sum previously expected.
In the German market, Bon managed to gain a foothold with the acquisition in March of a stake in MobilCom, which combines fixed-line, mobile and Internet services. The German government, too, is due to auction new cellular licenses later this year.
Finally, analysts believe France Telecom will also try to boost its stake in Wind by buying stock from Telekom.
Hill said Bon has a degree of financial flexibility to fund the company's next spree, with Orange scheduled for a partial flotation later in 2000 or next year, while holdings in Deutsche Telekom, Sprint (FON: Research, Estimates), Royal KPN and Mexico's Telmex are also set to go. Wanadoo, France Telecom's wholly owned Internet service arm, is scheduled for a money-spinning IPO, while the company has earmarked other businesses, such as its directory arm, for sale. 
|
|
|
|
|
 |
|
