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2008 in review: The 'C' word(s)

25 декабря 2008

Financial crisis hits telecoms space, but buyouts, tie-ups, regulatory rows, and the endless Internet love triangle also featured in 2008.

Things are not as bad as they were in 2000-2001.

By the end of 2008 that was the most-heard refrain from the telecoms industry.
Early claims that the economic downturn is not affecting telcos' and vendors' businesses have given way to announcements of cost-cutting, lowered guidance for coming quarters, and job losses.

The credit crunch. We've all had enough of those two little 'C' words already, but we've come to accept that times are going to be tough for a while yet.

This time last year we listed the private equity takeover of
Canada's BCE among the highlights of 2007. Little did we expect that 12 months on – and 18 months after the C$51.7 billion mega-deal was announced – it would have fallen apart, the latest victim of a global financial crisis. 

One company that refused to hide behind the economy when things went wrong was
U.K. incumbent BT.

A shock profit warning on the back of a poor performance from its Global Services arm led to the resignation of the IT unit's CEO Francois Barrault and a plummeting share price. When second-quarter results came out, CEO Ian Livingston admitted that problems at Global Services were "down to us" and announced measures to turn the business around. 

These included cost-cuts and a move away from bespoke contracts.
In addition, Livingston announced the loss of 10,000 jobs group-wide, under an existing plan to save £800 million this financial year.

BT was far from the only telecoms player cutting jobs in
2008. In fact, it would almost be quicker to list the companies that did not announce some form of headcount reduction during the year.

However, most notably, major job losses occurred at AT&T, Telecom Italia, Telekom
Austria, Virgin Media, Nokia, Nokia Siemens Networks, and Nortel Networks in the latter half of the year.

Nortel in particular has had a bumpy ride, and that looks set to continue in 2009.

The Canadian vendor saw its stock price plummet to below 30 US cents in late December, from around the US$15 mark at the start of the year, as a slowdown in spending from its U.S. carrier customers has begun to bite.

In public the company insists it is still committed to its turnaround plan, but behind the scenes Nortel is taking advice on how to proceed should that plan fail.
Another 'C' word – Chapter 11 – has also been bandied about quite liberally in recent weeks.

On a lighter note, in something of a strategy shift Nortel in June revealed that it would channel its wireless broadband R&D investment into LTE and transfer its WiMAX business into a joint venture with
Israel's Alvarion.
The vendor had previously been a strong proponent of WiMAX.

And just before we signed off for Christmas, the Canadian press reported that Nortel has received a number of bids of close to $1 billion for its Metro Ethernet unit. 


Handset heaven and hell

A number of the industry's major handset manufacturers reduced their sales outlooks towards the end of 2008, largely on the back of concerns over reduced consumer spending.

In mid-November Nokia cut its global handset market forecasts for the second time in a month, admitting Q4 device volumes would come in below its previous estimate of 330 million units, pushing down its full-year forecast to below 1.24 billion units.

In the same week it emerged that Samsung and LG Electronics also reduced their Q4 and 2009 forecasts.

And in November, analyst firm Gartner predicted that mobile devices sales would fall by a low single-digit percentage in 2009.

It was once again a difficult year for Motorola, which spectacularly failed to turn around its devices business, leaving everyone still wondering whether it will be able to follow the RAZR.

Indeed, in November Strategy Analytics revealed that Motorola had lost its position as the leading handset vendor in the
U.S. in Q3, losing out to Samsung. 

2008 saw new competition arrive into the mobile handset space.

While 2007 was undoubtedly the year of the iPhone, the hype did not go away in '08.
Instead, Apple cemented its position as a credible smartphone vendor with the launch of the 3G version of the handset, generating as much, if not more, excitement as it did with the original.

According to Gartner, the 4.72 million iPhones sold in the third quarter gave Apple a market share of 12.9%, leaving it in third place in the smartphone vendor rankings, behind Nokia and RIM.

Another newcomer was less warmly received than Apple, but looks set to make its mark going forward.

At the end of 2007 we were all speculating about the Google phone, the Internet giant having unveiled its open-source platform known as Android late that year.
In September '08 the first Android-based phone, the G1, was introduced… to almost universal criticism.

Everyone liked the idea, but the form factor was something of a let-down.

Symbian is also going open source.

In June Nokia launched an offer to buy out its partners in Symbian Limited, and joined a group of industry players to create the Symbian Foundation. 


Love triangle

Nokia's move to take control of Symbian was one of few major deals in 2008, unlike 2007, when takeovers and tie-ups were the order of the day.

But one attempted buyout, and the subsequent twists and turns, kept us entertained and frustrated in equal measure for most of the year.

On 1 February Microsoft tabled a $44.6 billion bid for Yahoo, a $31-per-share offer that represented a premium of more than 60% on its January closing price.

Almost immediately, Internet rival Google waded in to help Yahoo fend off the unsolicited bid, and there began the tug of love that dominated the industry in 2008… or at least until the credit crunch took hold.

Yahoo rejected the offer, claiming it undervalued the company, Microsoft threatened a proxy battle to oust the company's board, and discussions between the pair continued.

In the meantime, Yahoo was working on a search advertising deal with Google.

In May Microsoft offered to up its offer for Yahoo to $33 per share, but Yahoo demanded $4 more and the software giant retreated.

And that's when activist investor Carl Icahn stepped in, buying up shares in Yahoo and eventually forcing the Internet company to provide him and two allies with seats on the board, all the while pushing for a search deal – that would see Yahoo split up – with Microsoft.

Microsoft floated the idea of acquiring just Yahoo's search advertising business, but its quarry got into bed with Google instead, agreeing to a search deal in June. But talk of a possible Microsoft/Yahoo deal still would not die.

Google eventually walked away from the search advertising deal in November, fearing a long drawn out legal battle after the U.S. Department of Justice said it would move to block the tie-up.

The complexity of the year's other tie-ups and takeovers pale into insignificance compared with the Yahoo – Microsoft – Google saga.

The "new" Clearwire – a partnership between
U.S. telco Sprint Nextel and WiMAX operator Clearwire, backed by investment from Google, Intel, Comcast and others - began operations after the deal formally closed in November, paving the way for the rollout of a nationwide WiMAX network in the U.S. An original partnership between Sprint Nextel and Clearwire collapsed in 2007.

In August Ericsson and STMicroelectronics announced the creation of a mobile chipsets joint venture, a move that will help the pair compete more effectively with the likes of Qualcomm and Texas Instruments.
That deal passed EU scrutiny later in the year.

And Richard Li revealed in October that he planned to take
Hong Kong telco PCCW private.
That move got regulatory clearance at the end of December.

Some were not so lucky though.

A $2.2 billion bid from Bain Capital Partners and Huawei to buy out network equipment maker 3Com was scuppered in March after the companies failed to appease
U.S. regulators' national security concerns.

But Vodafone finally got its way in
South Africa, when it brokered a $2.3 billion deal with incumbent Telkom SA to take control of mobile operator Vodacom.

The Vodacom deal capped off an interesting year for Vodafone.


Around the world

China's long-awaited telecoms restructuring finally came to fruition as the country confirmed plans to create three integrated service providers by merging the state-owned fixed and mobile players.

The three resulting entities are expected to get 3G licences, and the licensing process is slated for early 2009.
However, China Mobile has already begun awarding TD-SCDMA network contracts. As expected, Chinese vendor's took the lion's share, with just 5% of the first wave of contracts, valued at $400 million-$450 million, going to Ericsson.

Australia, 2008 was dominated by posturing around the A$4.7 billion tender to build out a nationwide high-speed broadband network.

In the end, a number of parties bid for the project, including a consortium headed by SingTel's Optus, but with regulatory concerns surrounding structural separation still unresolved, Telstra submitted only a part-bid.
The government called the incumbent's bluff, leaving it out in the cold at the end of 2008 and mulling legal action. We suspect we haven't seen the last of this one.

Back in
North America, the FCC spectrum auction that the industry was eagerly awaiting this time last year finally drew to a close in March, with total bids reaching $19.6 billion.

The spectrum went to the usual suspects – Verizon Wireless paid over $9.6 billion for 109 licences, including some valuable C-Block spectrum that will enable it to offer nationwide wireless broadband services – but the nationwide D-Block licence remained unsold.

Although Google was involved in the early stages, the Internet company was not a major player in the auction, using it more as a platform to lobby, successfully, for open access conditions. 

And finally to
Europe once again, where the first lady of telecoms Viviane Reding took on termination rates and mobile data roaming charges, much to the chagrin of the region's operators.

Vodafone, for example, argued that reducing termination rates could price vast swathes of pre-paid users out of the market. 

However, as the year drew to a close it became evident that if anything would price out mobile users, affect mobile operator revenues, and slow handset sales, it would not be Ms Reding, but rather the ever-present credit crunch.

Источник: Total Telecom

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