In a frenzy of activity the telecoms market has demonstrated its instability this week as the most successful handset manufacturer issued a profits warning and debt-laden BT announced a 10 year deal with Deutsche Telekom to build the next generation in mobile communications, the 3G network.
Nokia surprised market analysts with a warning that profits would be less than had been earlier anticipated, citing slower than expected market growth amongst the reasons for the drop. As the most successful performer in the mobile communications market, Nokia was expected to fair better in this period of economic uncertainty than some of its lesser rivals.
Tuesday’s announcement, that 0.15-0.17 euros a share profit in the Q2 2001 was likely compared with earlier expectations of 0.20 euros and that expected year on year growth for Q2 had dropped from 20% to 10%, was surely a wake up call to investors who had previously considered the telecoms market immune to the current economic malaise. Shares in Nokia fell by 20% after the announcement had been made.
As the telecoms industry was reeling from the news and hopes of a ‘telecoms rebound’ were dashed, BT and Deutsche Telekom were putting the final touches to 3G plans.
The deal between BT and Deutsche Telekom will save BT an estimated 30% of the cost of new masts and base stations to support the network which is due to launch later in the year. Peter Erskine, chief executive officer of the soon to be de-merged BT wireless, said: ‘This is a pioneering agreement – we are the first to drive the intelligently planned creation of future mobile communications in two of the biggest mobile markets in western Europe”. BT shares rose by 4.25p as the partnership was announced and Deutsche Telekom shares rose by 1.93%.
Kai Uwe Ricke, chief executive officer of T-Mobile International, the mobile arm of Deutsche Telecom, said: ‘This partnership is the most far-reaching co-operation agreed to date in Europe. The agreement is an important milestone for fast, full coverage and inexpensive network construction in perhaps the most significant mobile communication markets in Europe.’
Subsequently, BT announced the appointment of restructuring guru David Varney to oversee the long-awaited demerger of BT Wireless, the mobile division of BT. BT Wireless will trade alongside BT on the LSE in a move which aims to improve the performance of BT operations, currently thought to be as much as £30 billion in debt.
Following the announcement, BT shares rose by 14.75p.
