These are tough times for European telecom operators struggling to repay huge debts run up during the frantic race to buy third-generation mobile telephony assets and licenses.
With their share prices in the doldrums and the new 3G services delayed by handset problems, companies like France Telecom, Deutsche Telekom and Dutch KPN are making slow progress repairing the holes in their balance sheets.
PHOTO: AP
Add to that the concerns about just how popular the new 3G services will be when launched, expected to be next year at the earliest in Europe, and many investors are still giving telecoms stocks a wide berth.
Even British giant Vodafone, which used stock not cash to pay for its piece of the 3G pie, has seen its share price underperform the flagging London market, partly because the new shares it issued diluted the stock.
But paying with shares has left Vodafone with debt of about 15 billion euros (US$13 billion) as of last September -- against some 65 billion euros since reported by both France Telecom and Deutsche Telekom.
The French and German operators have set ambitious targets for bringing down their debt piles, but with market conditions as they are there is no easy way for them to do so.
"They have to sort out their balance sheets and if the market continues to be difficult that's going to be harder and harder for them to do," said Tressan MacCarthy, an analyst at SG Securities.
Deutsche Telekom for its part still hopes to float its T-Mobile mobile business, but has delayed the move until the stock market picks up.
This week France Telecom said it would limit its investment in 3G technology at German operator MobilCom, in which it owns a stake of almost 30 percent.
The move sparked a row that could even see MobilCom chairman Gerhard Schmid force France Telecom to buy his 33-percent stake in the German firm, adding to its debt burden.
In another move to cut costs, France Telecom said this week it was considering paying dividends in shares.
Yet the mobile operators themselves like Vodafone, Orange and former BT offshoot mm02 have little debt.
"Because they have no debt problems and strong cash flows they have no problems funding 3G to the extent that they want to fund it," MacCarthy said.
Mobile operators owned by debt-laden parents by contrast are restricted in the scope to grow through acquisitions, because any debt taken on by Orange for example will appear on France Telecom's balance sheet.
Investors are also concerned that 3G services may not be the holy grail that operators first thought when they spent lavish sums on licenses and assets at the height of the telecoms boom.
"The sector as a whole is suffering from the fact that a few of its larger components went out and spent an awful lot of money, sometimes ill-advisedly, on businesses at the top of the market and now they are absolutely stuck on the debt issue," said John Tysoe, an analyst at WestLB Panmure.
"The shareholders aren't yet seeing any return for the money because it's been spent on businesses which are not yet profitable or cash generative and 3G's been delayed.
"The whole thing's been tarred by the dotcom-bubble brush, and so sentiment's just absolutely shot to hell," Tysoe said.
Analysts say that one way forwards might be for companies to follow in the footsteps of British operator BT and spin off their mobile businesses into a separate company able to pursue a high-growth strategy.
But, warned MacCarthy at SG, bloated operators might be reluctant to get rid of the most nimble, high-growth parts of their business, which would leave them back where they started: trying to make money out of fixed-line telephony.
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