LONDON -- British Telecommunications PLC and Deutsche Telekom AG said Tuesday that their mobile-telecom units, BT Wireless and T-Mobile International AG, will cooperate on the rollout of third-generation, or 3G, mobile technology. The move is a sign that European telecom firms are regrouping after sky-high auctions for the new technology left them with crushing debt.
BT (BTY) said that in the United Kingdom, it has signed a memorandum of understanding with One2One, a subsidiary of T-Mobile, while in Germany, T-Mobile has signed a similar memorandum with Viag Interkom, which is owned by BT Wireless.
Definitive agreements are expected to be signed at the end of the summer, BT said. BT said it expects the deal to create potential cost savings on 3G capital expenditure of up to 20% of total expenditure, or up to 30% of expenditure relating to 3G network building over 10 years.
The agreements involve a coordinated rollout of 3G infrastructure and the sharing of new and existing base stations, including sites, masts and antennas in urban areas, BT said. This will minimize the number of base stations and masts needed.
There also will be cooperation on bilateral roaming, which allows customers to use the facilities of both companies' networks while subscribing to just one. One2One customers also will be able to roam on BT Cellnet's 2G and 2.5G networks in selected areas of the U.K.
BT added that other substantial cost savings may well be realized on operational expenditure and further technological advances could further enhance these.
In May, BT said it intends to demerge its Wireless unit before the end of this year.
Moves like the one by BT and Deutsche Telekom are a sign of logic being reasserted in the rollout of this new technology and are helping European telecoms recover from the crushing blow of 3G auctions. In Europe, the auctions were the most devastating. Telecoms enamored with the promise of bringing this new technology to the European market -- where nearly 70% of adults have mobile phones -- paid huge prices for 3G licenses. The auctions stuffed government coffers, but left the winning telecoms with enormous debt.
After paying more than $100 billion for licenses to operate wireless 3G networks, European telecom companies are in turmoil. Already choking on debt in many cases, winning bidders now likely will have to spend an extra $100 billion to build out networks for the unproven technology, which is taking longer than expected to put into service. Many are selling prime assets, considering share offerings and rethinking their entire strategies. On average, European telecom stocks are down nearly 60% from their peak 13 months ago. For some companies, including BT, the debacle may hinder their ability to compete globally for years to come.
Now logic is being reasserted, sometimes brutally. KPN NV (KPN), which paid 8.9 billion euros ($7.5 billion) for licenses, has slashed its work force by 8, 000, or 19%, to help cut costs. Its shares are off nearly 88% since their peak in March last year, and the company is considering going back to shareholders to raise more cash.
Deutsche Telekom (DT) shelled out nearly 16 billion euros for licenses, helping swell its debt 53% in the past year to 56.8 billion euros. Its stock has tumbled 70% since its high last March. Institutional shareholders of British Telecom, meanwhile, indignant at the 67% drop in BT's share price since early last year and alarmed by the company's debt of 28 billion British pounds ($19.8 billion), have pressured BT into abandoning its dream of becoming a global operator. In recent months, BT has replaced its chairman and finance director as it struggles to sell peripheral businesses and slash its debt. The company's new chairman, Sir Christopher Bland, last month announced a plan to split BT into two companies -- one for wireless operations, the other for everything else. BT also eliminated
