Sunday, May 28, 2006

Euronext - NYSE alliance and economic patriotism

In the avalanche of comments and analysis about the potential merger between Euronext and NYSE, announced on Monday, May 22, one voice was conspicuously missing: that of French politicians. No claims of “economic patriotism”, no enflamed defence of the national champion. When Le Monde, in its May 24 edition, expressed a surprise at this lack of reaction, it reported a comment from a knowledgeable source: “ Euronext is not Danone or Arcelor.” No wonder the comment was anonymous: if it is true it only confirms the widely held view of economic illiteracy of French elites: leading marketplace less important strategically than a yoghourt or steel producer?
When a political voice was finally heard, on May 25, is was not one of the leaders, exalted Mr. de Villepin or haughty Mr. Breton but a Jean Arthuis backbencher from the upper house, Senate, who expressed his regrets and condemnation of French banks for their greed and short-termism. Jean Arthuis is a respected figure and ex-Minister of Finance but is affiliated with the centrist party UDF, which cannot make up its mind whether to oppose or to support the present government and the ruling party. He is clearly not an official spokesman.
The main reason for the silence of politicians is that the “economic patriotism” did in fact play a major role in the Euronext decision. It was the main reason for the rejection of Deutsche Borse (DBAG) bid. Euronext may be incorporated in Amsterdam and run a number of businesses in London, it is still a French-run and dominated company. And there is no way that it could accept a German takeover (which what a “merger” between DBAG and Euronext would amount to).  One only has to remember the old dream of union between France Telecom and Deutsche Telekom, which was practically an official policy during the 1990s but always foundered on the question of leadership and DT is so much bigger than FT.


Thursday, May 25, 2006

Vonage: Glass half empty?

Vonage went public yesterday not with a bang but with a pschitt. In a first day of quotation, its price has fallen by 12.7%, by far the worst performance of technology IPOs over the last two years:

COMPANY DEAL VALUE FIRST DAY LIFETIME
Google $1.916.4 bln +18.0 PCT +335.30 PCT
Freescale $1.690.3 bln + 7.9 PCT +131.60 PCT
LG Philips $1.058.9 bln - 6.3 PCT + 41.90 PCT
Navteq Corp $1.012.0 bln +15.0 PCT + 99.10 PCT
Neurostar $ 695.8 mln +18.2 PCT + 51.20 PCT
Vonage $ 531.0 mln -12.65 PCT** - 12.65 PCT
Dolby $ 569.3 mln +35.0 PCT + 23.00 PCT
Spansion $ 567.2 mln +12.9 PCT + 46.40 PCT
Himax $ 510.6 mln - 2.8 PCT - 16.90 PCT
Suntech $ 455.1 mln +41.3 PCT +107.50 PCT

Source: Dealogic

Tech IPOs tend to succumb to the original sin syndrome and the first day of trading often (but not always) prefigures a longer-term performance. However, before one writes a sorrowful obituary for Vonage, consider the following:
  • Even after this serious drop, Vonage is still valued at over 2.3 billion dollars, which represents a sales multiple of 8.5 (for 2005). And Vonage is still loss-making

  • The market valuation achieved is close to twice the one forecast only last February

  • The corporate story of Vonage is far from over. Many analysts, including me, thought that Vonage will not go public but will be acquired by one of the big telcos (existing and potential ones). This may still happen. Furthermore, the IPO renders feasible intermediate scenarios, such as a newcomer taking a strategic stake in Vonage, which remains listed.

Monday, May 22, 2006

Euronext NYSE merger: Geofinance trumps eurofinance

In the fast-pacing saga of public stock market consolidation, it looks like we have reached a new threshold. On Monday, May 22, the New York Stock Exchange (NYSE) announced a proposal to merge with Euronext, in a transaction valued at 21 billion euros. The other Euronext suitor, the Deutsche Börse, decided not to counter-bid. This was due not just to a fear of overbidding but also to a clear preference of Euronext management for the US partner.
NYSE-Euronext merger is far from a done deal, as it still requires approval of Euronext shareholders and is likely to face a series of regulatory hurdles, which while not necessarily deal-breaking are likely to be time-consuming. Nevertheless, the odds of the merger are better than even.
This is not the only transatlantic potential combination in this sector. Over the last few weeks, the other major US stock exchange, NASDAQ, has been building a strategic stake in the perennial bride of the European exchanges, the London Stock Exchange. NASDAQ now controls over 25% of the share capital, which gives it’s a blocking minority. It is difficult to see how the LSE could remain independent.

I am not sure how many analysts and pundits, who have been following the European exchanges consolidation expected this outcome. After all, European exchanges had better trading technology and in case of Euronext and DBAG, a more balanced business models. They went public long before their US counterparts.
US exchanges were late in coming to the public markets. It is only three months ago that NYSE went public. However, they more than made up for the lag by obtaining considerable higher multiples and valuation. Thus, their acquisition power was much stronger. In both potential mergers, the US exchanges will be the senior partners.

It is way too early to speculate about the chances of success of the two operations. For one thing, this is more an end of a beginning rather than a beginning of an end. However, one inescapable conclusion can already be drawn: the notion of eurofinance is no more than a fanciful and fragile political construct. If exchanges are going to accompany their investors and customers, they cannot remain within their traditional heartlands. The reality of cross-border capital and market flows is global: Geofinance trumps eurofinance.

Wednesday, May 10, 2006

Lucky Poland

When one looks at Polish history and politics, the word “lucky” is not the one that naturally comes to mind. To the contrary, one tends to thinks of Poland as a country cursed by its geographical location and whose history, since at least XVIth century, is a long suite of calamities and disasters. This is in part due to a deeply ingrained political tradition, which combines constant bickering with verbal grandstanding and ideological posturing, resulting in chronic instability and occasionally in major tragedies such as the successive partitions of Poland at the end of XVIIIth century and the subsequent loss of independence until 1918. Poles have a special word for this tradition: “warcholstwo” which can be translated as acute factiousness.
Not surprisingly, when the Communist interval ended in 1989, polish politics reverted to the familiar pattern: not a single government lasted more than one term, political parties rose, fell and changed spots amidst a cacophony of recriminations, accusations and anathema. Yet, this time around, Poland got lucky: “warcholstwo” did not trigger any serious economic or political consequences. Quite the reverse, since 1989, Poland has managed an exemplary, by standards of outside observers, transition to an open market economy, became one of the pillars of NATO and joined the European Union. And by all accounts, including that of committed Polish eurosceptics, EU entry has been unequivocally and broadly beneficial to the Polish economy.
One may attribute the Polish success since 1989 to two factors. First, for once Poland found herself in the right place at the right time. Placed between the crumbling East Germany and the disintegrating Soviet Union, Poland appeared as an anchor of stability and Western countries saw it as a showcase of successful transition. The second, more intangible, factor was the presence of John Paul II. I discussed in another blog the critical role of the Polish pope in the overall history of the second half of XXth century. For Poland, his role was even more important. Not only was he the spiritual guide of the nation but he also provided a strong sense of unity and did not hesitate to intervene personally when political bickering threatened to spill over into broader social arena.
Pope died in April 2005. But so far Polish luck appears to hold, despite a sustained effort of a large segment of political classes to test it, particularly since the last legislative and presidential elections in September and October 2005.These elections led to the political victory of Kaczynski twins, right-wing political duo, whose professed model is the Bavarian Christian Democratic Union (CSU). One twin, Lech, was elected President of Poland, while PiS, the party chaired by the other (Jaroslaw) became the largest group in the new Parliament. However, PiS did not win outright majority and thus had to find a coalition partner. It is then that things became complicated. The 'natural' partner was another right-center party, PO, which came second in the parliamentary election. This result was quite unexpected, including by PiS, which was widely seen as a junior partner, primary interested in internal law and order rather in a broader mission of steering Poland toward modernity and greater global integration. In the new political context, PO did not appear ready to swap roles with PiS and play junior partner. PiS - PO talks broke down in the torrent of recriminations and PO became the bulwark of the opposition. PiS set up a government on its own, with many critical ministerial post filled by non-political technicians and headed not by the party chairman but by a reasonably consensual (by Polish standards) politician, Kazimierz Marcinkiewicz. As the Polish political system is a parliamentary one, practically all government proposals have to be approved by the Parliament. This proved to be quite challenging. Opposition to the governing party might have been highly heterogeneous, from the post-Communists through various shades of center to the extreme Right, but as a result of this variety, every government proposal was simultaneously criticized as too profligate and too skimpy and either shot down or loaded with undesirable extras. Parliamentary debates degenerated into nerve-wrecking and frustrating marathons and psychodramas. This is nothing new in Polish politics. However, since 2004 there is a major change in the policy context: because of the EU membership, the government and the Parliament operate within a set of constraints, both legislative and budgetary, which further limited government’s freedom of maneuver. EU membership also means that the government has to take positions on a number of transborder issues. In this domain, it consistently adopted a stand of independence, bordering on defiance. It threatened to veto a deal on lower VAT rates in January and it opposed a takeover of a German bank by an Italian one, which would result in Italian bank in Poland absorbing another bank and increasing its market share. These actions plus few off-handed statements about the need to preserve the national character of the Polish economy and the clear reticence of the new President toward gay right activists was enough to convince international medias such as Financial Times, Figaro, the Economist or CNBC that Poland fell into the hands of backward eurosceptics. In the case of EU policy, this view proved unwarranted. Poles acted tough not because of an atavistic attachment to saber-rattling but simply because this is a time-tested strategy for newcomers to gain seat at the EU table, which has been practiced with great success by France, UK, Spain and Greece, among others Despite tough rhetoric, Poland never went over the edge and settled for compromises, which were deemed reasonable by all parties concerned.
In the case of internal political situation, foreign medias may have a point. It was true that in order to get its proposals through the Parliament, the government had to increasingly rely on the support of two fringe parties, Samoobrona (Self-defense) and LPR (League of Polish families). Samoobrona is a rabble-rousing populist grouping, which has its roots in the Polish countryside and defends the interests of all the “left behind.” Led by Andrzej Lepper, who used to be a boxer, Samoobrona does not shirk from verbal and sometimes physical violence. Lepper and his colleagues have been condemned several times by Polish courts for assaults and slander, which made them strange fellow travelers to a party, which calls itself, “Law and Justice” and want to promote moral renewal of polity and society. LPR is a linear descendant of the National Democratic (ND) tradition: its chairman Roman Giertych is a grandson of a principal adviser to the founder of ND, Roman Dmowski (1864 – 1939). LPR is traditionalist, deeply intolerant, rabidly anti-Semitic and selectively xenophobic, distrustful of the West, particularly of Germany, but slavophile and pro-Russian. Both parties strongly and vociferously opposed joining the EU. Since the accession, Samoobrona changed somewhat its position, as Polish farmers emerged as main beneficiaries of EU market opening. However, its rhetoric toward Brussels remains as aggressive, even insulting as ever. It did not help its international image when one of its euro-deputies was charged with assault on a prostitute in Brussels. LPR, for its part, persists in its euro-hostility.
As the level of warcholstwo kept rising in the first months of 2006, mainstream Polish media became increasingly concerned about its impact on Poland's international standing and economic performance. On the economic front, fears appear unfounded so far. Since the arrival of the new government, the economic growth has accelerated and is likely to touch 5% in 2006. Broad consensus is that, barring a major disaster, it should continue at a similar rate in the next few years. More tellingly, financial markets appear supportive. Stock indices are going from record to record and the Polish currency continues to appreciate. If anything, many economists believe that the zloty is overvalued (and some probably secretly wish for more irresponsible statements from government officials).
On the political front, it is again a question of luck, of the right timing. Polish politics, as strange and shameful they might appear to judges of public opinion, do not stand out relative to other EU countries. Warcholstwo appears to be contagious. For instance, Polish press widely anticipated that Polish government will be publicly called to order at the EU summit last March. But whatever criticisms the Commission might have had against Poland, they were instantly eclipsed by Chirac's outburst and walk-out in reaction to a French industrialist’s temerity to make a speech in English.
Who is going to bother about a strange pronouncement by a Polish politician, when French government stumbles from crisis to crisis and English government appears to crumble under a combined weight of incompetence and sex scandals?
However, Polish situation continues to evolve inexorably and the ruling party has now crossed another threshold. After months of informal flirting with Samo-obrona and LPR, PIS tacticians came to the conclusion that the only alternative to new elections, which may again prove inconclusive, was to invite the two parties to join the government in a formal coalition. In early May, the agreement was concluded and both Lepper and Giertych became vice-Prime Ministers. Samo-obrona was given portfolios of agriculture and labor, LPR, that of primary and secondary education.
To say the least, the new coalition was not greeted with universal approval. PiS politicians somewhat bashfully explained that they had no choice and that the major policies would not change: Poland would remain the pillar of NATO and pull its weight within the EU. The mainstream Polish press was dismayed and expressed feelings ranging from anger, to embarrassment and shame. The EU press widely echoed those opinions and deemed the event important enough to warrant editorials. The one by Le Monde, dated May 7/8. 2006, was quite typical. Entitled "Danger in Poland", it criticized heavily the new Polish government, which it compared to Austrian’s decision in 2000 to let the extreme right led by Jorge Heider into the government. It concluded, with obvious regret, that, contrary to the reactions to this decision by other EU countries, which were quite vocal and included partial ostracizing of Austrian officials, Poland is likely to get away without any overt blame.

It remains to be seen whether the newly found Polish luck will persist. This will largely depend on the further evolution of political situation, which I see as more open than the mainstream pessimists believe. The new coalition may crumble in the next few months, precipitating new elections. Yet, many observers believe that it may last for several years, until the next scheduled elections in 2009. A more important question is whether the new coalition will stimulate the rise of ‘warcholstwo’ to new levels of self-destructive posturing or whether it will actually contribute to the necessary modernization of Polish politics. It should be remembered that the widely criticized decision by François Mitterand to invite Communists to join his government in 1981 actually led to a durable decline of Communism in France. As an old saying goes, “Keep your friends close, and your enemies even closer.”

Monday, May 08, 2006

Thierry de Montbrial et le Moyen-Orient: à coté de la plaque

Inénarrable Thierry de Montbrial continue de pontifier doctement dans le Monde. Cette fois ci, dans le Monde daté du 4 mai, il opine sur le Moyen-Orient. Le titre de son article dit tout: « L’échec de Bush au Moyen-Orient. » Il considère que la politique américaine dans la région est « calamiteuse » et catalogue les points chauds, Iraq, Syrie, Palestine et bien entendu l’Iran, avec qui la tension est au zénith et dont les dirigeants sont très sûrs d’eux-mêmes. Bien entendu, chacun a droit à son opinion même si tout le monde ne peut la publier dans le Monde. Toutefois, Monsieur de Montbrial devrait être plus modeste dans ses appréciations et jugements, lui qui, en tant que premier directeur (de 1973 à 1979) du Centre d’analyse et de prévision auprès du Ministre d’Affaires étrangères a joué un rôle pas négligeable dans la formulation de la politique française de soutien actif à l’Ayatollah Khomeini (qui est rentré à Téheran dans un avion d’Air France) et, par l’effet de balancier, du lâcher du Shah de l’Iran. Dans ce contexte, sa remarque un peu désobligeante sur « le régime des mollahs » peut paraître surprenante mais s’explique probablement par un sentiment de dépit puisque le moins que l’on puisse dire est que la générosité française n’a guère été payée en retour. Par contre, il ne faut pas s’étonner qu’après avoir descendu au bazooka la politique étrangère américaine, caractérisée selon lui par une absence totale d’une « stratégie d’ensemble», il cite avec l’approbation le nom de son ami, Zbigniew Brzezinski, l’ancien conseiller pour la sécurité nationale de Président Carter (1976 – 1980) et de ce fait le principal artisan du revirement de la politique américaine vis-à-vis de l’Iran, qui a abouti à la chute du shah et l’arrivée au pouvoir des ayatollahs, avant de provoquer le second choc pétrolier et de contribuer à la décomposition du Liban et plus généralement à une exacerbation des tensions régionales. Même s’il est complice intellectuel de de Montbrial de longue date, Brzezinski apparait plutôt mal placé pour donner des leçons de cohérence à l’administration Bush.

Thierry de Montbrial n’a jamais brillé par l’originalité de ses idées ou la vivacité de sa prose. Sa force était dans la capacité d’exprimer un certain consensus pondéré et réaliste de l’élite française. Toutefois, est-ce l’effet du « déclin français », qui se traduit par un appauvrissement continu des débats d’idées en France ou la contagion de l’obsession anti-américaine dont parlait avec tant éloquence le regretté Jean-François Revel, mais la qualité de ses analyses est passée de simplement convenue à proprement affligeante. Je n’en prendrais qu’un exemple, celui de l’Iran. Sa situation objective est loin d’aussi forte que le prétend de Montbrial. A l’intérieur du pays, une large partie de la population, notamment la majorité des classes moyennes, est non seulement anti-ayatollah mais franchement pro-américaine. Aux frontières, la situation en Afghanistan et en Iraq ne peut qu’inquiéter les mollahs et leurs alliés. Le risque est grand non seulement d’une perte d’influence, déjà sensible en Afghanistan, mais surtout d’une contagion démocratique. Il est vrai que l’Iran cherche à manipuler les mouvements et les parties shiites in Iraq mais il n’est pas du tout sûr que ces manœuvres réussissent. Si par contre, un régime démocratique dominé par les Shiites finit par émerger en Iraq, il va exercer un fort pouvoir d’attraction sur les shiites iraniens. On peut appeler cela le scenario « l’Allemagne de l’Ouest – l’Allemagne de l’Est » et l’on sait quel fut le résultat de ce scénario pour l’Allemagne de l’Est. Dans ces conditions, le régime actuel a toutes les raisons d’être inquiet. Loin d’exprimer une confiance en soi, la véhémence verbale du Président iranien et la précipitation de la course vers le nucléaire traduisent une nervosité et une crainte que le temps ne joue pas en faveur du régime en place. Et le danger réel pour celui-ci n’est pas celui d’une action militaire extérieure mais celui d’une déstabilisation interne.

Même erreur d’analyse et de jugement dans l’appréciation et les recommandations concernant le conflit israélo-arabe. Dans ce conflit, il y a un élément nouveau, qui modifie radicalement le contexte. En effet, l’évolution de la région et des ses enjeux depuis 2001 a mis clairement en évidence le fait que ce conflit ne constitue pas la pièce maitresse de l’équilibre régional. Il n’a joué qu’un rôle secondaire dans les événements du 9/11 et ses suites, qu’il s’agisse de l’Afghanistan ou de l’Iraq. Son hypothétique résolution ne réduirait guère d’autres sources de tensions régionales, qu’il s’agisse de l’Egypte, de la Syrie, du Liban ou de l’Iran. Et affirmer que l’intervention du Quartet, dont l’inefficacité passée n’égale que la méfiance entre ses membres, constitue une alternative viable à la politique actuelle, relève d’un vœu pieux plutôt que d’une réflexion qui se veut sérieuse.

Mais cette fois-ci, il y a plus grave, beaucoup plus grave dans le propos de Thierry de Montbrial. Dans sa fixation sur la centralité du conflit israélo-palestinien, il en vient à l’équivalent intellectuel d’un coup en-dessous de la ceinture. En effet, il cite à l’appui de son analyse, un document récent de deux universitaires américaines, John Mearsheimer et Stephen Walt, qui « ont mis radicalement en cause la politique des Etats-Unis vis-à-vis d’Israël ». Les deux universitaires sont peut-être « très respectés » mais leur document est loin de susciter l’admiration ou l’adhésion universelles. Il est même extrêmement controversé, dans la mesure où il affirme que la politique étrangère américaine est inféodée au « lobby israélien ». Cette affirmation n’est pas nouvelle mais d’habitude elle est émane des officines douteuses, dont les théories sur la conspiration sioniste mondiale s’inspirent d’un autre document, tristement célèbre celui-ci, « le protocole des sages de Zion », un faux avéré produit par Ochrana, le service secret de la Russie tsariste au début du XXe siècle. On retrouve aussi ces affirmations et ces théories dans la littérature et sur les sites internet des partis islamistes les plus extrêmes et dans la propagande officielle des modèles de démocratie que sont la Syrie et l’Iran. Sans doute, les deux professeurs et Thierry de Montbrial, récusent avec indignation toute accusation d’antisémitisme Mais parler comme le fait Thierry de Montbrial, de la nécessité d’ »une posture plus équilibrée des Etats-Unis » relève de l’offuscation intellectuelle, similaire à celle pratiquée par les intellectuels de gauche pour justifier les excès du communisme et prôner l’accomodation. Visiblement, « les idiots utiles » de Lenine ne sont pas tous morts suite à la chute du mur de Berlin.

Ce qui surprenant dans cette histoire est la place d’honneur accordée par le Monde à la pensée de de Montbrial sur le Moyen-Orient. Il sera intéressant et instructif de voir premièrement, si elle suscite d’autres réactions que celle d’un marginal, de surcroit « sioniste », et, deuxièmement, quelle place Le Monde donnera à ces réactions.

Thursday, May 04, 2006

Economist's New Media survey: Practice what you preach?

In its issue, dated April 20, the Economist published a survey on New Media. As usual, it is content-rich, well-written and thought-provoking. As I am very much interested in topics discussed – blogging, wikis and other forms of participatory medias - and had some personal thoughts about the ongoing revolution, I wanted to react, online of course. This proved quite challenging. There was a section called Offer to Readers, which kindly proposed me to buy reprints, as well as plenty of links to sources of the survey but nothing that would support interactive dialogue. It was probably too much to expect a space for comments and short blogs at the end of the survey but it actually proved quite difficult to even find the e-mail of the author, Andreas Kluth. It took me about ten minutes of search on the site and even then the proposed format of comments, obviously designed by the guy who is charge of all “user-friendly” forms used by the UK government, did not encourage free flow of ideas. I managed to put a sentence that the Economist should eat what they cook and facilitate interaction, when they discuss interactive medias but I am not sure what the response will be.

My other comment was that while the comparison between blogging and invention of movable type by Gutenberg may not far-fetched, it does require further elaboration and should be put in a historical perspective. More specifically, Gutenberg invention led to the rapid destruction of the scribe trade, it took several hundred years and additional inventions for the full-fledge emergence of medias. Not surprisingly, those inventions were economic in nature. I think specifically of the classified ads. They appeared first in XVIIth century and it took another hundred years to stimulate the development of newspapers. Similarly, the emergence of the brand-focused advertising in late XIXth and early XXth centuries led to the surge of mass-medias.
Internet has compressed the time frames and made technological and business innovations quasi-simultaneous. Nevertheless it did not eliminate their interactions and mutual dependence.

I agree that the long-tail (which I discussed some time ago as a “library effect”) is an important phenomenon but wonder whether it does not have limitations. In the new world of medias, everybody can publish and more people are likely to be read but I am not sure how much more. Contrary to widespread perceptions, networks are neither flat nor uniform. They have hierarchies and after a while tend to disproportionately concentrate around few nodes. Paradoxically, the very abundance of links and data is likely to increase concentration, as users are looking for guides and clear paths within the ever increasing labyrinths of views and opinions.

Telecommunications: seismic shifts ahead

Over the last few weeks, the pace of restructuring of telecommunications operators has accelerated. And it affects not only the declining fixed line business but also the (still) flourishing mobile business. In early March, 2006, AT&T announced that it will merge with BellSouth, a Baby Bell in an euro 60 billion transaction. Few days later, Vodafone sold its Japanese business to Softbank, Japanese Internet conglomerate for close to euros 13 billion.
The consolidation of traditional telcos has long been expected, under the combined impact of deregulation and commoditization of fixed line business. What is new in current manoeuvres is that they are driven by strategic challenges in mobile business.
These challenges include:
  1. Technological integration among different mobile standards (GSM, TDMA, CDMA) and the speed of convergence to CDMA (and related technologies such as High Bandwidth (HSDPA))

  2. Pricing structure rationalisation in order to increase usage and to prevent

  3. Declining ARPU (average revenue per user), which then results in lower AMPU (Average Margin Per User)
Underlying these challenges lurks a spectre of the wireless high-speed Internet. This is the promise and the menace of CDMA and other 3G technologies, which finally are getting ready for prime-time and full-fledged deployment. Much is made of the threat that VOIP (voice over the IP) poses to fixed line telcos business. But the threat is actually as real and economically much more serious to the mobile voice business. And mobile voice is at present both the cash-cow and the growth driver of a great majority of telecommunication operators across the world. It was the acquisition of Cingular Wireless that triggered the AT&T – BellSouth merger.
It does not require much crystal-balling skills to foresee that the VOIP over wireless high-speed internet will cause drastic adjustments in pricing of voice services, similar to the one that broadband Internet imposed on ISPs, forcing them to shift from time-based to fixed-use pricing. To the extent that mobile revenues are much higher and more important to telcos operators than those generated by ISP traffic, the adjustment will be more dramatic and painful.
Telecommunication landscape is likely to experience seismic shifts, similar to the one that shook up the computer industry between 1985 and 1995. By the end of this period, none of the major players has survived in its previous incarnation and the sectoral hierarchy was changed beyond recognition with new players (Microsoft, Intel and Dell) becoming market leaders. We can anticipate similar or even bigger upheavals in the telecom domain. New players are beginning to show their hands. In this respect, the Skype acquisition by eBay and Softbank’s entry into mobile are the first harbingers of a massive invasion. It is difficult to see Google or Yahoo not entering the fray. Existing players, in particular the historical telcos, have between eighteen months and three years to define and put in place their strategic response. This entails further restructuring of their business lines. More fundamentally, it requires a serious look at the core business model. Telcos need to move away from traffic-based and direct-billing revenues and implement new pricing structures, based on service, content and third-party pricing (such as advertising).

Posted as Industry Comment for April 2006 on www.highdeal.com