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One of the possible implications of the AT&T/DT deal could be that American telcos would become interested in acquiring European incumbents. Except, they won't. Because:

• They are not very interested in cross-border deals to begin with. In the 20th century, companies such as SBC picked up strings of stakes in European telcos, but that was during the privatisation phase. Any foreign interest will most likely be focused on Latin America, Canada, or perhaps even Africa and CIS countries.
• Regulation will deter them.
• There will be more important investment cases, such as buying out DT from AT&T and Vodafone from VZW. But also FTTH and LTE.

You have to remember further that the T-Mobile sale from DT's perspective has everything to do with the April 2009 profit warning. In other words, it is a one-time event and will not set a new trend.

And so it is fun to read two contrary commentaries landing in my mailbox from respected consultancy firms. Who's going to teach whom a lesson?

Brand X:

Until quite recently, the US was generally seen as being somewhat backward in comparison with Europe when it came to mobile. Those days are definitely over. The US now "gets" mobile – in a big way. In developed economies, the growth in mobile is no longer being driven by telecoms, but by software and the internet. US companies have long been the dominant internet services brands (Google, Facebook, Amazon, etc), and the recent Nokia/Microsoft announcement put the cap on North American dominance of the market for smartphone platform software. Having shown Europeans how to win in internet services, and in smartphone software, perhaps the Americans' next lesson for Europeans may be how to win in consumer mobile.

Brand Y:

An evil person might say that T-Mobile employees that had the experience and knowledge about how T-Mobile had experienced massive competition in Germany and Holland from successful competitors might not want to share that information - because nobody wants to admit that they got thoroughly beaten up by their much smaller competitors! In conclusion: The American T-Mobile venture has been scrapped, those that ought to be held responsible for this sad turn of events will not be accused of anything and the shareholders will once again realise that they have invested in a company that despite all their experience and knowledge could not perform.

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AT&T buys T-Mobile USA: will the deal survive FCC scrutiny unscathed?

AT&T buys T-Mobile USA for $39bn, o/w $25bn in cash (may be raised by $4.2bn, as long as DT's stake is at least 5%) and $14bn in shares (for an 8% stake). The EUR equivalent is 28bn, of which EUR 13bn is for debt reduction (31%) and EUR 5bn for extra share buy-backs. The price implies a valuation of 7.1x adjusted 2010 EBITDA.

Deutsche Telekom further refers to its continued exposure to the US market and the attractive AT&T dividend. AT&T defends the deal by referring to the extra spectrum and the increased ability to blanket the US. They also refer to an 'impending spectrum exhaust'. And they are happy to report that T-Mobile USA will be 'part of a US-based company'. AT&T expects a synergy run-rate of >$3bn from 3 years after closing, total synergies will exceed the purchase price

Here are some first thoughts, some off of Twitter, for which a hat-tip to Dean, Keith and Brough:

• What will DT do with the proceeds, i.e. the remaining EUR 10bn (locked up in AT&T stock for 1 year after closing)?
• What does this imply for other markets, particularly those where DT offers mobile services only, such as the UK?
• If 4G/LTE was a dealbreaker for T-Mobile USA, what does this imply for other companies still undecided on their 4G roadmap, such as E-Plus (KPN) in Germany?
• Bad news for LightSquared, which is bound to lose a wholesale customer.
• What will Sprint do?
• How will the DoJ and FCC respond?
• AT&T may have to give up spectrum.
• If AT&T pulls this off, Verizon Wireless will be enabled to make further acquisitions as well. Which would be bad news for Vodafone: no long-awaited dividend re-installment.
• What would the break-up fee be? - UPDATE: $3bn + some spectrum + a roaming deal.
• Integration may lead to bad service for the next 12 months.
• Competion will be reduced, the market may develop oligopolistic traits.

Telco M&A update

Never a dull moment in telcoland.

• Is Telefonica still hunting KPN after all?
• Is Carphone Warehouse selling out to Vodafone?
• Will AT&T go international once more? Previously a Telecom Italia bid failed and AT&T is now reverting its attention to Telekom Malaysia's international mobile assets.
• Is Deutsche Telekom expanding in eastern Europe, bidding for a chunk of Telekom Slovenije?

Observations:

• A KPN deal seems unlikely, but when asked if KPN will be around as an idependent company in 10 years time, most people will probably reply 'no'.
• Companies appear to be replicating Telefonica's and Telenor's success abroad. For Deutsche Telekom eastern Europe gains importance, and AT&T may expand into southern Asian mobile markets on the back of a TM International acquisition.
• DT buying into Telekom Slovenije is, in a way, a backdoor entrance into the FTTH market. It is interesting to see how strategies differ across borders: DT has no FTTH strategy at home; KPN fights the incumbent in Belgium; AT&T could be a mobile-only company in Asia; etc. When fighting the incumbent or defending an incumbent operation, words must be chosen carefully, or companies risk being confronted with their own foreign subsidiaries' statements by the regulator.

Telcos should embrace the wholesale market

Yesterday I had a short meeting with an industry executive in my hometown Utrecht. Another very valuable meeting - by way of reality check.

We mainly discussed two topics.


1. Wholesale

I think of wholesale as a very attractive business. Obviously, there is a strong connection to the separation stance.
In the old days, incumbents like KPN instructed managers pretty explicitly to frustrate their wholesale clients. Even today, Deutsche Telekom thinks it can only recoup their FTTN/VDSL investments by demanding a regulatory holiday, effectively allowing its retail organisation sole access.
Now, this is all reversing – maybe not at DT but I do think at KPN (a finalist for Light Reading’s Awards). More incumbents acknowledge that independent service providers (let’s call them BSPs) have something to add – things that are not in the incumbents’ DNA. Think innovation. Also, marketing to specific niches can handily be left to focused BSPs.

Linked to this is the telco stance that the investment incentive supposedly disappears when full (structural or ownership) separation is forced upon the company by the regulator. Again, I do not see this. Extending the portfolio, and opening the platform to third-party developers, looks like a sound business strategy to me. It will attract BSPs large and small. Sure, investing carries risk, but that’s part of doing business, isn't it?

Speaking of which – applications. Please allow me to wander off for a moment. I have been putting together a very short overview.

Fixed
Back in April, BT took the lead by restructuring and establishing a BT Design and BT Operate unit, granting developers access plus a SDK. AT&T may be planning a similar move.

IPTV
See my post on Orca Interactive and SeaChange. IPTV seems to me the one area that could benefit most from adding apps, in order to strengthen the telco vis-a-vis
the cableco or satco.

Internet
Facebook did very well, allowing third-party developers access to the APIs, even if monetization is not quite so easy. In any case, the apps worked well for the valuation of Facebook.
Yahoo! may follow.

Mobile
Motorola launched a ‘solutions Catalog’ into beta to invite third-party developers.

2. KPN

Few will contest the strategic logic of the string of acquisitions (Telfort, Tiscali NL, Getronics, iBasis, etc.) by the Dutch incumbent, KPN. Right now, it looks like brand rationalisation will happen, but what does that mean when the company has a multi-brand strategy?
Of the above takeovers, obviously Tiscali is the one that will have to return its brand to the mothership in Italy. Normally, they would probably have 36 months or so. After that, I think KPN will revert to one of the existing brands. I guess XS4ALL, the premium brand, could be a candidate.

So, which holes are left in the KPN portfolio? After the Tele2 Belgium deal (which effectively precludes a Belgacom merger), KPN may shift its attention to Germany. I think E-Plus will be beefed up by an LLU operator. Some are not for sale (subsidiaries of Vodafone, Telefonica and Telecom Italia), many others probably lack sufficient network coverage. What’s left is Versatel Germany or QSC. The latter has a wholesale business only, so combining it with E-Plus may not be a bad idea at all.

Finally, for my readers at Belgacom – check out this Trouw article (in Dutch) on Reggefiber, the stealth FTTH builder in the Netherlands. Get back at those KPN guys who bought Tele2 Belgium, and enter the Netherlands by buying Reggefiber!
Some will argue that owning an (open access) network is at the lower end of the value chain, but I believe it can produce great returns, especially since a FTTH network is future proof. Granting independent BSPs open access not only allows you into the wholesale market, it will keep the regulator happy too. Furthermore, you can always start or buy your own retail organisation!

UPDATE (thanks Dirk 'FTTH' van der Woude: "It's been quite a while since I last reported something remarkable from the Netherlands, but I think this falls in that category.")
Reggefiber and KPN are teaming up in Almere, reports Trouw. That adds a twist to any Belgacom/Reggefiber speculation. Of course, all we need is a single FTTH network. KPN and Belgacom could dump all their FTTH assets into a Reggefiber Joint Venture and turn into service providers.
Here is an English translation of the Vincent Dekker story (translated by Vincent himself):

KPN has decided to join forces with Reggefiber to speed up the roll out of FTTH in Almere, the fifth largest city in The Netherlands. Reggefiber already owns some networks in smaller towns and in parts of cities, like the project in Amsterdam. This time they will build a network for the whole of Almere. KPN will deliver services on that network. It will bean open network though, so KPN will have no monopoly on it.
Then why would KPN do this? Well, I'm not sure, but it looks as if KPN has no other options. KPN is losing customers in great numbers to the TV-cable networks nowadays. These networks can offer full triple play, whereas KPN kan only deliver ADSL and telephony on its network. IPTV is not a success as yet. And its Digitenne (DVB-T) is also not good enough to really compete with the cablecos. KPN has a plan to roll out All-IP in the next 4 years, which is fiber to the street cabinets and old copper from there to the homes, but this VDSL will also not be good enough to protect marketshare.
So KPN needs FTTH badly. In Almere Reggefiber was already chosen to build the FTTH network and now KPN has decided to join forces with Reggefiber. It will encourage its customers to switch from the KPN POTS network to the fiber network. That should make the new network profitable in a very short time. On that network it will most probably not only offer very fast internet (100/100 to start with) and cheap IP telephony, but also DVD-quality analog video and digital hdtv. With that offering people might be persuaded not to switch to the cable company and even drop that cablecompany for their tv-service. In the Netherlands some 90 percent of all homes now still get TV via cable, the rest via satellite and a few percent via Digitenne.
KPN will keep its POTS network alive for the time being, but that can't last very long. So in a few years this incumbent will no longer own a network that covers the whole of the country. My guess is that Almere could very well be the start of much more cooperation between Reggefiber and KPN in other parts of the Netherlands, Amsterdam and other big cites to start with. KPN needs a network to compete witch cable, and it needs it fast. The news of todaycould therefore be good news for everybody in The Netherlands: the start of a national FTTH network at last. We're a few years behind Japan and quite a few other countries already, so it certainly is not too soon...
Almere is an interesting city for FTTH. The cable company there is UPC, owned by Liberty Global of John Malone. If Almere will show the same pattern as seen in other towns where Reggefiber already has fibernetworks, UPC can expect to lose some 70 percent of its customers in the next 2.5 years. After Amsterdam and Rotterdam Almere is UPC’s biggest market. So losing most of its customer there will hurt. And ater Almere, Amsterdam or Rotterdam could be next on the agenda of Reggefiber and KPN.
KPN has decided its POTS network in Almere has only marginal residual value. That's one message we got today. How long will it take before cable companies will admit that this is true for their network too?

Some short-term triggers

Here are some possible triggers for short-term movement, before the new reporting season starts:

• Telefonica: to decide on the sale of its 75% Endemol stake (late March). Mediaset and John de Mol are candidates.
• OTE: Greek state to sell 20% stake (late March). This could be the chance for Telefonica or DT to step in.
• Vodafone: investor day on UK and Germany in London (March 30). Time for bullish news to turn those businesses around. When will topline growth return?
• AT&T, Verizon, Qwest, Sprint Nextel: US government to award Networx Universal contract (late March). The second part, Networx Enterprise, will be awarded late May. Together, they are valued at $20bn over 10 years. Looking at the partners each brings, my bet is on AT&T.
• KPN: investor day on new structure (April 4). The company will no longer report along the Fixed/Mobile line, but along Consumer/Business. Wholesale & Operations contains the physical infrastructure and a fourth division is devoted to IT services in the Netherlands.
• Yahoo!: hiring new CFO and Audience Group CEO (weeks away?).

HARDWARE://Implications from Apple

Apple introduced the iPhone (with Cingular), Apple TV and AirPort Extreme. I am sure they will be widely covered in the blogosphere; I will be short.

Here are my questions and remarks:

• Will the user interface (touch-screen, one button) really work well?
• Why is the deal with Cingular exclusive and multi-year? (The Verizon Wireless/YouTube deal is exclusive for only a limited period of time.) What did Cingular/AT&T offer to get this deal from Apple?
• The iPhone seems an expensive gadget (for now?), therefore addressing a limited market - unless Cingular offers a big subsidy. Apple did the same for Mac and iPod, so that is OK. What puzzles me is that the 8 GB product is a full $100 more expensive than the 4 GB handset.
• What will the Cingular service plan look like, especially the data part? Will they go the Hutchison/X-Series way?
• It lacks UMTS (for now?). Apple seem to be commiting to the GSM-world anyway.
• It has a 2 MP camera, which I personally consider too limited for competing against standalone digital cameras.
• How will the iPod hold up against the iPhone?
• Has a deal been worked out with Linksys/Cisco for the use of the iPhone brand?
• Who will be partners in Europe and Asia?
• Apple follows the divide-and-conquer road, allowing both Yahoo! (push email, search) and Google (Talk, Maps, search) on the iPhone. Skype is a notable absent (but now there is iSkoot - Symbian only, but that will change and could include the Apple OS?), but Jajah has stated that it will be compatible.
• Will there be any truth in Eliot Van Buskirk's rather compelling case against iTunes?
• The AirPort uses the hip draft-11n standard.
• Apple TV ($300) must hurt Sling Media's new SlingCatcher (which will be cheaper at < $200), as well as Orb (free).

UPDATE (Jan 11):

• UI: see David Pogue in the New York Times
• Price points already include Cingular subsidies, so it seems.
• Cisco is suing over the iPhone name.
• It looks like it will be a closed system: no downloads of any VoIP clients (Jajah needs no dwonload).

UPDATE (Jan 22):

• iSupply calculates the cost of the $500 handset at $246. The 4GB NAND flash memory costs $35, the 8 GB costs $70.
• Telefonica's O2 is rumoured to be a partner in Europe.
• The draft 11n standard gained support at the IEEE, but full ratification is not expected until April 2008.