BERLIN -- The European telecommunications industry has long been the corporate equivalent of a soap opera -- chock-full of intrigue and courtship, as well as of treachery and double-dealing.
And just like on any good soap, there is constant dalliance among telcos. Unions and alliances are constantly made and broken. Earlier in the week, everybody seemed interested in wooing Finland's alluring
( SNRA). While
bold and dashing
unit had been considered the suitor most likely to succeed, old and moneyed
( DT) was also mentioned as paying court to Sonera.
Sonera might be a great little company in a great little market, but DT's chairman
is more likely interested in finding Latin partners to help him plug key gaps in Telekom's European strategy for a universal mobile telecommunications system, which will allow all manner of mobile connectivity. While Deutsche Telekom is certain to garner a license in Germany's third-generation mobile phone auction and already has a pricey British one, ways to corner both Italy and France remain glaringly lacking for Sommer's outfit at the moment. Both are big markets, bigger than the Nordic player's, and DT will be hard-pressed to become a global force if it isn't competitive in its own backyard.
Observers say the former state-run monopoly also has its hands full with a massive $50 billion bid for U.S. mobile company
. Fetching though Sonera might be, pursuing two acquisitions at once might be a little more than the company would want to attempt.
As the costs of a license continued to rise in the German auction, New York-traded Telekom shares shed 1 11/16, or 3.8%, to 42 5/8 on Wednesday. That's close to the bottom of its 52-week range of 39 5/8 to 100 1/4.
How apparent the challenge remains for DT was highlighted last week when the company announced it would not seek an Italian universal mobile license on its own, but would still seek a partner for third-generation wireless operations there. That came as Hong Kong's
beat out DT for the hand of
, a consortium led by Italy's
. Andala is widely thought to have good chances of garnering a license, yet needs the backing and financial support of a big international partner.
Telekom had already been forced to sell its stake in the
mobile group by partners France Telecom and
, after its bungled merger attempt with competitor
last year. Now, after missing out on Andala, DT has actively begun to court Telecom Italia's mobile unit.
Unfortunately for Sommer, Telekom's overtures appear to be falling on deaf ears. Telecom Italia CEO
seemed less than thrilled with the idea of teaming up with DT in a recent interview. "At this stage, the ball is entirely in Mr. Colaninno's court," says Iain Johnston, an analyst for
in London. "And at the moment he appears to be pursuing an independent strategy." Morgan does have an investment banking relationship with Deutsche Telekom.
The Colaninno cold shoulder could just be his way of playing hard to get in hopes of making Sommer offer sweeter terms down the road, but Telekom is unlikely to go after a deal in Italy at all costs. That's because the Italian wireless market is mature, with some of the highest mobile penetration in Europe. Plus, even after he forks out billions for VoiceStream, Sommer has to think about that other prize among the big four European cellular markets: France.
France is holding a "beauty contest" instead of a straight auction, in which the government will pick the operators it deems fittest and charge a flat fee of 32.5 billion francs ($4.7 billion). That is expected to favor the established local operators to the detriment of foreign interlopers such as Deutsche Telekom.
One possibility for Telekom could be to team up with
, France's No. 3 wireless operator. The cash-strapped Bouygues was considered one of the biggest opponents to a French auction and may still have difficulty coughing up the beauty contest fee. However, Bouygues is thought to be discussing its options with a number of major telcos, which could again leave DT shut out.
The key to France for Sommer may be through Italy and Telecom Italia's Colaninno. The Italian outfit already controls around 11% of Bouygues and Colaninno has said he intends to increase that stake.
"Maybe Telecom Italia will take care of an overproportional part of the financing" for a French universal mobile license, says Frank Wellendorf, an analyst for
in Duesseldorf, Germany. Compared to the other established French operators, "the financing for Bouygues is somewhat more difficult." How much of an opening that will give DT, however, is unclear.
WestLB has an investment banking relationship with Deutsche Telekom.
The only thing that is for sure is that Sommer will need to be as suave as any soap opera hero if he hopes to strike a deal with Colaninno on Italy and at the same time agree upon a joint strategy for Bouygues and the French beauty contest.