Telecom Trendspotting; Alcatel-Lucent, Infineon, Reliance-MTN deal, DT investigation

In the May 30, 2008 FT print edition there were several telecom articles worthy of comment and analysis :
 
Alcatel-Lucent bosses face rough reception
 
The troubled network equipment company wants to make a big move from equipment into services  Too much competition from Huaweii and ZTE along with slow growth in developed countries may be driving the company away from the low margin network equipment biz.  BT and VZ are already providing value added services to customers, but they are telcos not equipment vendors.  
 
FT:  In essence, the gamble for Alcatel is to reduce its reliance on the price-led fixed-line and wireless equipment businesses and boost the contribution from its small but fast-growing services division, which covers everything from operating networks for clients to integrating applications and maintenance.
This will not be easy for a group that needs to deliver better profits for investors fast. Margins are under pressure on fixed and wireless, while contracts in the rapidly growing managed services segment take roughly a year to return a profit. The more contracts Alcatel-Lucent wins, the more it must be prepared to invest in margins.
 
Alcatel-Lucent’s ambition is to see this (services) business grow from roughly 20 per cent of turnover – at sales of about €3bn ($4.6bn) last year – to roughly 35 per cent of the group’s sales.
 
Reuters:  Analysts hope the company will snap a string of five straight quarterly shortfalls when it reports second-quarter results at the end of July. A Thomson Reuters poll shows that Wall Street expects, on average, that Alcatel will notch a profit of 3 cents a share.
 
Infineon hit as chip demand wanes
 
 
Key point:  Much lower expected sales of "Internet enbabled"  (3G) phones!
 
FT:  Infineon warned yesterday that sales and profits at its wireless division would be lower in the third quarter because a project to supply Nokia was delayed, sending the German chip company’s shares down more than 10 per cent.  The world’s fourth largest wireless chipmaker also said it had received lower orders than expected to supply chips for a unnamed maker of high-speed Internet enabled mobile phones.
 
Analysts speculated that the customer could be Apple, and a sign that the company could be launching its new 3G iPhone in lower volumes than expected next month.
 
Infineon supplies the main high-speed download packet access (HSDPA) chip – which allows the phone to make fast connections to the internet – to Apple, and the launch of the new iPhone this summer was expected to account for a large part of Infineon’s HSDPA chip sales in the third quarter.
 
"We believe the run rate forecast has been recently adjusted down by 1.5m units," said Nicholas Gaudois, analyst at UBS, forecasting a €20m ($31m) impact on Infineon sales.  Shares in the company, which have lost 50 per cent of their value in the past year, fell 10.7 per cent to €5.58.
 
Infineon’s warning adds to concerns over softening sales of internet-enabled mobile phones. US rival Texas Instruments, and Sony Ericsson, the handset maker, have both recently warned of weakening demand for high-end phones. Figures from Gartner yesterday showed that sales of handsets in Western Europe fell 16.4 per cent in the first quarter of 2008, the first decline since the research company began tracking the market seven years ago. The Nokia project is for chips used in very low-price phones for developing countries.
 

Reliance head seeks main role with MTN

http://www.ft.com/cms/s/0/89e36500-2da8-11dd-b92a-000077b07658.html

Reliance could offer MTN right connection
 
Key points here are that wireless growth is occuring in the developing world and the indigenous operators prefer to merge with other operators that also serve developing markets.  Rumor is that Vodafone wanted to bid for MTN but was rebuffed.
 
Few have recognized how big the resulting Reliance-MTN entity would be. 
FT:  A combination of Reliance and MTN could put the merged entity into the top tier of telecoms groups, which include China Mobile, the world’s largest mobile operator by market capitalisation, and Vodafone, the largest wireless company by revenue.
 
Finally, the impact of the deal on WiMAX and 3G/4G rollouts in India is being questioned.
FT: some industry observers are not convinced of the merits of a merger between Reliance and MTN. They said a deal could distract Reliance from plans to upgrade its mobile network in India, the world’s second fastest growing wireless market.
 

D Telekom offices raided over spy allegations

 
Unwelcome call for Deutsche Telekom

http://www.ft.com/cms/s/0/8f18a276-2db0-11dd-b92a-000077b07658.html

We reported on this DT investigation earlier this week in the ComSoc-SCV news summary.  But we did not know the magnitute of the alleged crimes at that time.  The largest telco in Europe may have spied on directors and journalists by illegally tapping their phone lines or procuring detailed billing records of their calls.
 
FT:  Prosecutors in Telekom’s hometown of Bonn on Thursday raided the company’s offices after launching a preliminary investigation into possible criminal actions by former Telekom executives. They allegedly inititated a spying campaign targeting directors and journalists three years ago.
 
The company said at the weekend that the activities under investigation might have been aimed at discovering whether senior company officials were in contact with journalists. People close to the matter said phone data appeared to have been searched to establish this.
 
Following the corruption scandal that rocked Siemens, the Telekom spying scandal is welcome ammunition for the critics of modern capitalism, not least Germany’s new Left Party. But it is also more than that. Co-decision making and strict privacy laws were invented by a post-war Germany intent on guarding against another military industrial tyranny that disregarded individual rights.

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