Deutsche Telekom AG (DTE) said a combination of its German network with France Telecom SA (FTE)’s domestic system to create Europe’s largest single network would create little value and be too difficult to manage.
“I’m not sure there are many advantages for both parties because you get to limits,” Niek Jan van Damme, Deutsche Telekom’s head of Germany, said in an interview in Cologne today. “The management of a bigger network normally has more challenges than a smaller network.”
France’s new Industry Minister Arnaud Montebourg favors France Telecom merging with its German counterpart to create a group modeled after European Aeronautic Defence & Space Co. (EAD), Journal du Dimanche said June 10. Bonn-based Deutsche Telekom and Paris-based France Telecom already cooperate on joint purchasing of 13 billion euros ($16 billion) worth of items including handsets and infrastructure every year. They also co- own the largest U.K. phone operator, Everything Everywhere.
Van Damme said he couldn’t say whether Deutsche Telekom’s current alliance with France Telecom will lead to deeper integration. He declined to comment on the prospect of a full merger. The German government owns 32 percent of Deutsche Telekom, while France controls 27 percent of its biggest phone company through a direct stake and another held by the sovereign fund Fonds Strategique d’Investissement.
Low Valuations
The valuation of European phone companies has fallen during the region’s debt crisis, with the 19-member Bloomberg Europe 500 Telecom Services Index (BETELES) near the lowest in three years. That has invited investors such as Carlos Slim’s America Movil SAB, which last month made an offer to increase its stake in Royal KPN NV, and may facilitate the return to large intra-European telecommunications deals reminiscent of Vodafone Group Plc (VOD)’s 1999 takeover of Mannesmann AG and Telefonica SA (TEF)’s 2005 move on O2 Plc.
Deutsche Telekom shares jumped 1.7 percent in Frankfurt today, while France Telecom gained 1.5 percent in Paris.
The French Minister discussed the ideas of combining the companies in a June 4 meeting with France Telecom Chief Executive OfficerStephane Richard, Journal du Dimanche reported, without saying where it got the information. A representative at Montebourg’s ministry couldn’t immediately be reached today for comment.
Cost Pressure
Europe’s former phone monopolies are under pressure to cut costs as the crisis saps demand for services. A combination of Deutsche Telekom and France Telecom would create a company with sales of more than 100 billion euros, assets covering most European markets and stretching from the U.S. to the Middle East.
“Even if there are numerous topics of discussion and collaboration between Deutsche Telekom and France Telecom, there is no discussion about a merger,” Tom Wright, a France Telecom spokesman, said today.
Members of Deutsche Telekom’s supervisory board have discussed how to deepen the cooperation with France Telecom, according to a person familiar with the situation, who declined to be identified because it’s an internal matter.
Suggestions include obtaining access to emerging markets through France Telecom’s network, cross-border phone service free of roaming charges, joint negotiations with content providers and building shared fiber-optic networks in border regions, according to a document obtained by Bloomberg News.
To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
Deutsche Telekom
Wolfgang von Brauchitsch/Bloomberg
The headquarters of Deutsche Telekom AG stand in Bonn.
The headquarters of Deutsche Telekom AG stand in Bonn. Photographer: Wolfgang von Brauchitsch/Bloomberg
Algerian ban on ZTE, Huawei highlights corruption controversy - PC Advisor
The conviction on corruption charges and a two-year ban imposed on ZTE and Huawei Technologies in Algeria underscores the growing controversy surrounding the awarding of ICT contracts to Chinese firms in northern and sub-Saharan Africa.
The two companies were found guilty by a judge last week of corruption charges related to tenders for state telecom contracts, specifically for bribing executives at the state-owned telecom network, Algérie Télécom, between 2003 and 2006. In addition to a two-year ban on participating in telecom bidding in the country, the two companies have been fined 3 million dinar (US$30,000) each.
Two executives of Algérie Télécom, Mohammed Boukhari and Chami Madjodoub, were found guilty of receiving the payments and money laundering and were sentenced to 18 years imprisonment and ordered to pay $64,000 each in addition to the prison terms.
Three Chinese officials, Dong Tao and Cheng Zhibo of ZTE and Xiao Chuhfa of Huawei, were sentenced in their absence to 10 years in jail. Their extradition is being sought by the Algerian government although it is unlikely that China will extradite them.
Statements from the companies confirmed the details of the sentences but denied the charges. Huawei in a statement presented the companies as "victims of bribery as well," pushing the blame on the executives cited for the offence.
But the convictions put pressure on the China-based companies to show they can participate in telecom and networking bids in the region without resorting to bribes, industry insiders say.
"There have been several complaints of corruption practices by the two Chinese companies in Africa, which they have always denied. But with conviction of officials, ZTE and Huawei have to clear their names," said Edith Mwale, telecom analyst from African Center for ICT Development.
The Chinese government has funded several telecom projects in Africa through loans whose conditions are that supply and installation contracts are given to Chinese companies. ZTE and Huawei have been awarded several contracts by African governments and telecom operators to supply infrastructure support, laying fiber-optic cables and supplying devices such as modems and handsets.
Corruption has however become rife in Africa's telecom market as international telecom companies compete for supply contracts in the region's telecom sector.
In 2010, Germany-based Siemens lost the right to bid for World Bank-funded telecom projects in Africa after corruption allegations surrounded the company's acquisition of a supply contract in Nigeria. The company was found guilty of paying more than $12.7 million to three former communications ministers in Nigeria.
ZTE and Huawei, however, have faced more corruption allegations in Africa than other companies.
Last year, Nigerian lawmakers gave the go-ahead to a joint committee of police, public procurement, debt management and IT officials to investigate ZTE over a $470 million contract for the National Communication Security System. The investigation, currently in progress, is supposed to determine whether the award of the contract to ZTE conformed to guidelines for government contracts.
The Ugandan government last year blocked a $74 million loan from the Import and Export Bank of China (EXIM) earmarked for a digital migration project, in order to check into allegations of procurement flaws and overpricing by Huawei.
Separately, controversy arose in the country over a tender by Huawei to lay fiber-optic cable for the national transmission backbone infrastructure project. The national backbone and e-government infrastructure was a $106 million project, funded by a loan from the EXIM Bank of China. The project was halted over controversy involving allegations of inflated costs and the use of incorrect cabling.
In Kenya, controversy surrounded the award in August 2011 to the Pan African Network Group of China for the country's digital TV signal distribution operations. Opposition Kenyan lawmakers accused the Kenyan government of flouting the tender process and knocking local companies out of the bidding process in favor of the Chinese company.
In another breather for telcos, spectrum mortgage gets RBI nod - rediff.com
This will enable telecom companies to raise money from financial lending institutions.
However, the finance ministry has said in a letter to Telecom Secretary R Chandrashekhar that the proposal, first mooted by the Telecom Regulatory Authority of India this year and having in-principle approval of the Telecom Commission, the highest decision-making body of the Department of Telecommunications, is subject to fulfilment of certain conditions.
These include a tripartite agreement among the Government of India, the lender and the borrower to protect the interests of the lender in case of a force majeure.
"The RBI has advised it may consider treating spectrum as tangible security, subject to fulfilment of conditions," the letter read.
The telecom industry, with a cumulative debt of around Rs 2,75,000 crore (Rs 2,750 billion), has been mired in various controversies, besides facing intense competition, low tariffs and falling margins.
The development also assumes importance as the government all set to conduct the auction for 2G spectrum by August 31, in line with the Supreme Court directive, following the cancellation of 122 licences on the apex court's order.
Other conditions put down by RBI include a robust methodology to discover the market price of spectrum and a margin to take care of downward fluctuations in prices and a credible valuation methodology to value spectrum reflecting the true realisable value of the airwaves.
Further, in case of default by a borrower, the bank should have the unfettered right to sell, transfer, assign exchange or dispose of the spectrum, without any restraining condition, the ministry has said.
Also, in case of cancellation or revocation or voluntary surrender of telecom licence before the realisation of full dues, the right on spectrum should be with the lenders, it has added.
DoT had sought the opinion of the law ministry on the issue, while the proposal for mortgaging of spectrum was also to be examined by finance ministry and RBI.
"This issue will be taken up on a priority basis as it needs to be decided before the finalisation of auction guidelines and issuance of notice inviting applications," a senior official from DoT had said.
Trai, in its recommendations on spectrum auction, had said on April 23 this year that telecom companies might be allowed to mortgage spectrum to a registered Indian financial institution against borrowings.
However, the mortgage would be subject to the condition that in the event of default of the liability, the spectrum would be auctioned by the financial institution under the supervision of DoT and all proceeds in excess of the liability would be remitted to the government.
An empowered group of ministers, headed by Finance Minister Pranab Mukherjee [ Images ], has been mandated to take final decisions on all auction-related issues.
The next meeting of EGoM, where the proposal for mortgage of spectrum and the other contentious issue of base price for the auction will also be decided, is slated to take place towards the end of this month.
In the first meeting, the EGoM had cleared the proposal for the auction of 10 MHz of spectrum in eight blocks.
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