Orange IPO Signals Caution, But Other Carriers Remain Undaunted - Company Financial Information

By Mark Holmes, mholmes@the-phillips-group.com

LONDON -- Orange's disappointing performance during its first two days of trading has the industry wondering whether other operators looking to sell off wireless assets later this year should even bother. In Paris Wednesday, Orange finished its second day's trading at $7.96 (8.81 euro) per share, a 6 percent drop.

However, other operators still insist their IPOs will go ahead.

"It is all systems go," a British Telecom [BTY] spokesman told Wireless Today. "We said in November it is our intention that there will be an IPO of up to 25 percent of BT Wireless in the second half of the year, and that is what we are working towards."

KPN spokesman, Marinus Potman, also reaffirmed that floating its wireless operations is still in the cards.

"We haven't determined the timing yet, but the second half seems the most likely. I think it is still possible to do an IPO in the first half of this year, but you have to bear in my mind the circumstances, and at the moment they are very hard to predict," Potman said.

It seems most operators are banking that the environment in the second half of the year will improve so they can derive greater value for their mobile assets. Operators such as KPN and BT especially need to have successful IPOs in order to cut their current level of debt.

"The question is how much choice they have in when they float their mobile assets and what valuation," Louisa Greenacre, a telecom equity analyst at ING Barings, told Wireless Today. "They all have relatively weak mobile assets in terms of their European presence and the quality of assets they need to sell. It may be that strategic sales become more likely, rather than flotations, if investors' appetites remain the way it seems to be today. The other issue is if they choose to go ahead at any valuation, to the extent they destroy shareholder value by giving up percentage of those assets for less than they actually should be worth. So there is a trade-off between the need to cut debt against the valuation impact of giving away assets for less than their true value."

Yet, is the market sentiment likely to improve later in the year? Mark James, a telecom equity analyst at Nomura International, doesn't' think so.

"I don't think 2001 will be the year for a wireless resurgence," James said. "I am a believer in wireless data, but I think it will come later. I think we are going to need handsets, products that are user friendly and people who have the handsets and are spending money on them. So people can actually see revenues, profits and cash flows. I don't think that will come in 2001. I think what Orange has demonstrated is that investors are getting more choice in telecoms so are being a bit more discriminate. I say that, but I still think Orange is one of the blue chips in this year's pipeline."

Orange may be seen as a blue chip stock, but what of others like BT Wireless and T-Mobil?

"I don't necessarily think you need to be big for the sake of it, in terms of having a pan-European footprint," James added. "I think you have to demonstrate that you have strong businesses in the individual countries concerned, as well as the ability to cultivate and generate strong businesses. BT Wireless is an interesting company and I am curious as to what will be in it when it comes to market. I think T-Mobil is a blue chip stock to the extent of, when the VoiceStream deal is completed, it will have exposure to the U.S. market, and I think that will be sought after. It is an under-penetrated market and GDP per capita levels are high. There is scope for growth in a very large, wealthy market."

Despite the current market sentiment, the overall view toward wireless data is still positive, Greenacre added

"I really believe there is a huge market for wireless data and I think people will pay for it, and even allowing for delays in UMTS and GPRS, there is a lot scope for growth on what we have today," Greenacre said.

COPYRIGHT 2001 Phillips Publishing International, Inc.
COPYRIGHT 2001 Gale Group