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Review of 2009: Stalking horses

The demise of a key telecoms industry player brought the term "stalking horse" to the fore in 2009 - much as the economic crisis took the expression "sub-prime lending" to the masses last year - as rival vendors circled to pick the carcass of Nortel Networks clean.

In the Total Telecom review of 2008 we picked out the Canadian vendor as an example of a company that had had a particularly tough year.

"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," we said, noting that entering Chapter 11 looked like a distinct possibility for the vendor.

But we didn't expect it to happen quite so soon.

Nortel's Chapter 11 filing came only two weeks into the new year, a move that ultimately all-but wiped the industry stalwart off the telecoms map.

During 2009 the vendor has been slowly dismantled, one asset sale after another. Europe's Nokia Siemens Networks became the first stalking horse – an opening bidder that effectively sets the bar for an asset sale - in June with a $650 million offer for Nortel's CDMA and LTE assets.

At the time the word on the street was that there were no other bidders waiting in the wings. However, at the 11th hour, Ericsson stepped into the fray, as did Nortel bondholder MatlinPatterson Global Advisers, and local player RIM made it known that it had been blocked from bidding in the auction; Nortel countered that RIM had failed to meet auction requirements.

At the end of July Ericsson emerged victorious, securing Nortel's wireless assets for $1.13 billion, edging out its Finnish-German competitor. And later in the year Ericsson agreed to pay $70 million for Nortel's GSM businesses in the U.S. and Canada, while Austrian partner Kapsch CarrierCom said it would pay $33 million for most of the remaining GSM assets outside North America.

Simultaneously U.S.-based Avaya emerged as the stalking horse for Nortel's enterprise solutions unit, with a $475 million bid. Following a September auction, the pair eventually agreed a deal worth a total of $915 million, the arrival of a second bidder having bumped up the price.

The next stalking horse out of the stable was Ciena, which lodged a $521 million bid for Nortel's optical networking and carrier Ethernet business in October.

In the November auction Nokia Siemens Networks waded in with an offer of its own, but Ciena won out with a bid worth a total of $769 million. NSN attempted to follow up with a $810 million bid, but the courts ruled the auction could not be reopened.

Former Nortel CEO Mike Zafirovski - he quit in August - spent the final months of his tenure deflecting criticism over his failure to secure the best prices for the vendor's assets.

Indeed, just before we signed off for Christmas last year, and prior to the Chapter 11 filing, the Canadian press reported that Nortel had received a number of bids of close to $1 billion for its Metro Ethernet unit, significantly more than Ciena ended up paying.

Chapter 11 also spelled the end for Nortel's mobile WiMAX business, which it had farmed out to a joint venture with Israel's Alvarion. And the Canadian vendor also sold its next-generation packet core assets to Hitachi for $10 million and layer 4-7 data assets to Radware for $17.65 million.

Thus, at the end of 2009 the once mighty Nortel has effectively been reduced to its Carrier VoIP and Application Solutions business and some intellectual property. A conspiracy theory earlier this year suggested that Nortel aims to re-emerge as a patent troll, for want of a better expression, although we believe the smart money is on saying goodbye to Nortel for good.

Although by far the biggest name to (effectively) disappear from the telecoms space in 2009, Nortel was not the only company we lost.

Advertising-funded MVNO Blyk pulled the plug on its U.K. operation this summer, electing instead to partner with Orange in the mobile advertising space.

And another U.K. venture, Project Kangaroo, was abandoned when it was ruled a threat to competition by the Competition Commission in February.

Project Kangaroo's owners, broadcasters the BBC, ITV and Channel 4, agreed to sell the technology underpinning the planned Internet TV service to Arqiva in July.

Mobile M&A
The U.K. is effectively set to lose one of its major mobile operators in the not-too-distant future, after Orange and T-Mobile agreed to a U.K. merger in September.

The pair inked their "merger of equals" in November, but the integration of the businesses – presuming regulatory approval follows – is likely to take several years. The telcos have committed to retaining two brands for 18 months after completion of the deal, during which time they will make a decision on their new merged identity.

We predict that one way or another, the T-Mobile brand will disappear from the U.K.

Meanwhile in March Vodafone and Telefonica unveiled a network-sharing agreement covering their operations in Germany, Spain, Ireland and the U.K.

The operators claim that the deal, which will see them jointly build out new sites and consolidate some existing sites, will enable them to save hundreds of millions of pounds over 10 years.

Orange brokered a similar deal in Switzerland to the T-Mobile tie-up in the U.K. in November when it announced plans to combine its operations with those of TDC.

The Orange/Sunrise tie-up will have around 38% of the market, making it a stronger competitor to incumbent Swisscom.

U.S. mobile operator Sprint Nextel agreed to pay £483 million (including the value of its existing 13.1% stake) for MVNO Virgin Mobile USA in July.

Sprint plans to retain both brands and place Virgin Mobile at the heart of its newly-formed prepaid business. The acquisition closed in November.

In Australia Vodafone and Hutchison Whampoa's 3 merged this year in a bid to boost their ability to compete with larger players Telstra and Optus.

The merger was completed in June and both operators have since reported positive results from the tie-up.

One potential deal which eventually failed to come to fruition was the proposed tie-up between Indian operator Bharti Airtel and South Africa's MTN.

News of the multi-billion-dollar-deal broke in May, just over a year after Bharti and MTN broke off earlier merger discussions. The pair engaged in exclusive negotiations for several months, but were unable to reach agreement, the regulatory framework in both countries having been largely to blame.

Discussions terminated at the end of September, although Bharti made it clear that fresh overtures towards the South African operator are not out of the question.

Rules and regulations
A number of telcos found themselves in regulatory and legal difficulties in overseas markets during 2009.

Telenor's ongoing legal battle with Russian partner Alfa Group intensified, leading to Russian bailiffs seizing most of the Norwegian operator's shares in Vimpelcom and threatening a forced sale.

But in October Telenor and Alfa agreed to merge their stakes in Vimpelcom and Kyivstar to create Vimpelcom Ltd, a company with a new legal framework that will provide its parents with a platform for expansion. Alfa will own 38.8% of Vimpelcom Ltd and Telenor 38.5%.

Meanwhile, Argentina's National Commission for the Defence of Competition in August ruled that Telefonica's presence in Telecom Italia's shareholder structure is potentially damaging to competition in the market; Telecom Italia owns 50% of Sofora, the controlling shareholder in Telecom Argentina, which offers fixed-line services alongside Telefonica in Argentina.

The antitrust body gave Telecom Italia a year to divest its stake in Sofora, effectively forcing the Italian operator out of Argentina.

As 2009 draws to a close, Telecom Italia is thought to be evaluating a number of bids for the stake, although press reports suggest offers have come in well below the approximate €1 billion value of the stake.

Separately, Telecom Italia's ownership structure changed in 2009, with Benetton's Sintonia exercising its right to pull out of the Telco consortium in October. At the same time the remaining members of the consortium voted to renew their pact.

Selling out of Telecom Italia will cost Sintonia €310 million. The sale of its 2% stake will take place in the first half of 2010.

2009 was a key year for regulatory developments in Europe.

July saw the introduction of EU telecoms commissioner Viviane Reding's much-vaunted roaming rate cap.

The commissioner cut the maximum cost of making a voice call while roaming within the EU to €0.43 per minute, while inbound calls were capped at €0.19 per minute. Text message rates were cut to €0.11 when the new rules came into force on the first of the month.

In other news in 2009, Apple launched its latest iPhone – the iPhone 3GS – amid much fanfare, while a host of new service provider partners worldwide began offering the various incarnations of the handset; Vodafone in June introduced Europe's first commercial femtocell offering; a price war kicked off in India's mobile market as competition intensified, but the country failed to award 3G licences; China started the year with 3G licence awards; Yahoo and Microsoft agreed a search advertising partnership, while rival AOL was spun off from Time Warner; Motorola surprised by posting a profit in two consecutive quarters; Skype co-founders Niklas Zennström and Janus Friis returned to the Internet telephony provider's shareholder structure as owner eBay finally brokered a sale agreement; and Google made its presence felt in the mobile space as a number of the big vendors introduced phones based on its Android operating system.

Источник: Total Telecom

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