Carrier strategies to raise capital during slow economic times

18 October 2011 | Guy Matthews

What strategy do you employ if you desperately need to raise capital to pay down debt and fund future growth?

If you are the chief executive of France Telecom, Stephane Richard, you stick with your so-far successful Conquests 2015 strategy and sell off the less profitable assets in your company’s international portfolio.

The saleable bits that France Telecom has primarily in mind are in markets where the company is a third or fourth player, with little obvious prospect of major market share gain. To this end, it is looking for buyers for its stake in the Portuguese and Austrian telecoms markets, but denies that it is also seeking a buyer for its Belgian presence.

Another option the company appears amenable to is the further reduction of the 27% stake which the French government still owns in the operation. Richard has let it be known that this plan would meet his approval, but he doesn’t believe the company’s current low share valuation makes this an attractive step for the government right at this moment.

Deutsche Telekom has a different kind of problem. Its latest quarterly financial results show profits down owing, it has said, to competitive conditions in its home market and poorly performing operations in other European countries. Deutsche Telekom is overexposed in parts of Europe where economies are scraping rock bottom. Its stake in Greek incumbent OTE, for example, is looking a lot more like a liability than any sort of future cash cow. It is also struggling to get a return out of Romania.

At home in Germany the company remains a strong and profitable force. But even here it recognises the need to sustain this profitability through continued attempts, against heavy opposition, to reduce its headcount. What would help Deutsche Telekom immeasurably would, of course, be a successful conclusion to its move to sell off its US T-Mobile assets to AT&T, which has been ongoing since March when the proposed $39 billion deal was first announced.

Deutsche Telekom would have known all along that getting such an arrangement past US regulators wasn’t going to be a stroll in the park. But it must now be beginning to tire of the relentless criticism of the deal, and the pressure from so many quarters, not least AT&T’s cellular competitors, to see it quoshed.

A lot of attention has been focussed on whether AT&T will be allowed to conclude a buyout that would have such a seismic impact on the US wireless market. Less analysis has been made of what Deutsche Telekom does next if the sale is forcibly abandoned. How else it is going to raise or save $39 billion?

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