April 2, 2023

European Mobile Stocks Fall After Costly Spectrum Auction

BERLIN — Shares of four big European cellphone operators fell Monday after they paid more than twice what investors had been expecting in a spectrum auction in the Netherlands, raising concern that a damaging bidding war could sap the industry.

The Dutch auction began Oct. 31 and ended Friday, raising €3.8 billion, or $4.9 billion, for spectrum that the companies plan to use for high-speed service using Long Term Evolution, or LTE, technology. But analysts warned that the sale, to be followed next year by a much larger spectrum auction in Britain, could herald a new round of expensive infrastructure levies that may hamstring operators at a time when their sales have been stagnating.

The winners were KPN, the former Dutch monopoly; Vodafone, the British mobile group; the German company T-Mobile, and the Swedish operator Tele2.

LTE supports all of the typical high-speed applications including audio and video and Internet surfing, but is much faster, cutting download times and vastly expanding the capacity of existing networks to handle increases in data traffic.

After the bidding, KPN, which is partly owned by the Mexican communications mogul Carlos Slim Helú, canceled its dividend for 2012 and lowered its projected investor payout for 2013 to cover the $1.35 billion the company spent in the auction.

On Monday, the first day of stock trading after the auction’s completion, shares of KPN fell by as much as 14 percent in Amsterdam, the steepest drop in more than a decade. Shares of Vodafone were down 2.6 percent in London through mid-afternoon trading.

Shares of Deutsche Telekom, the parent company of T-Mobile, fell 1 percent in Frankfurt, and shares of Tele2 declined 3.5 percent in Stockholm.

“The money raised in the Dutch auction was a lot more than investors were expecting,” said Phil Kendall, an analyst at Strategy Analytics in Milton Keynes, England. “The concern now is that the sums will now be so great the technology will be unprofitable.”

Mr. Kendall said mobile operators were eager to obtain extra spectrum because extensive bandwidth had become increasingly critical amid the explosion of mobile Internet data, which is testing the capacity of some carriers’ grids and causing overloading.

“Really, for many operators, the only way they will be able to differentiate themselves from other operators is by having enough spectrum to manage the demand on their services,” Mr. Kendall said. “That is why there is such intense interest in buying more frequency.”

More radio spectrum, or wireless network capacity, is crucial to delivering the high speeds advertised in LTE, which theoretically can produce download rates of up to 300 megabits per second on a wireless connection. Such speeds and the expanded capacity of the networks are considered essential to support the rapid expansion of the wireless Internet, as well as the increasing use of mobile grids for robotic communication between devices.

Speeds on the first generation of LTE networks activated in Germany, South Korea, Sweden and the United States have averaged much less, generally 10 to 25 megabits per second, in part because operators do not have enough spectrum to exploit the technology’s full potential.

The Dutch auction also raised the specter of another costly round of infrastructure fees on the cellphone industry similar to those in 1999 and 2000, when operators paid billions for the first European 3G mobile licenses.

Investors were concerned that the Dutch prices could set a precedent for auctions planned in Britain and perhaps Poland next year, as well as others that will be held across Europe over the next five years as bandwidth is freed up and sold by national governments to wireless carriers. Germany, which held its latest spectrum auction in 2010, has indicated that it may hold another in 2016.

Those license sales in 1999 and 2000, engineered by cash-strapped governments in most cases to extract the maximum amount of money from mobile operators, led to large profit write-downs by operators including Vodafone and Telefónica, which owns the O2 carrier in Europe.

With completion of the Dutch auction, the focus will now shift to Britain, where the telecommunications regulator is planning to begin its spectrum auction in January.

All four British mobile network operators are expected to bid: Everything Everywhere, the venture of Deutsche Telekom and France Telecom; Vodafone; O2 U.K.; and 3, a unit of Hutchison Whampoa. The former landline monopoly, BT, has not ruled out a potential bid, which could further raise the stakes.

Matthew Howett, an analyst at Ovum, a research firm in London, said the British auction could raise £2 billion to £4 billion, or $3.2 billion to $6.5 billion.

“The £2 billion to £4 billion range that is widely touted is based on similar auctions elsewhere in Europe,” Mr. Howett said. “There is nothing to suggest that the U.K. should be any different. It’s possibly the most competitive market in Europe and all existing operators will want to make sure they walk away with spectrum to feed the almost insatiable appetite we in the U.K. now have for data.”

Article source: http://www.nytimes.com/2012/12/18/technology/european-mobile-stocks-fall-after-costly-spectrum-auction.html?partner=rss&emc=rss

DealBook: Melrose Agrees to Buy German Utility Meter Manufacturer for $2.3 Billion

LONDON – The British investment company Melrose agreed on Friday to buy the Elster Group, a German utility meter manufacturer, for $2.3 billion.

Melrose, a London-based firm that specializes in acquiring underperforming manufacturing businesses, said it would offer investors in Elster $20.50 a share for the German company, a 48.6 percent premium on Elster’s closing share price on June 11 before the deal was first reported.

Elster, listed on the New York Stock Exchange in 2010, was previously owned by the private equity firm CVC Capital Partners, which bought the German company in 2005.

Europe’s sluggish economy has hurt many of the Continent’s companies, particularly in industries that are reliant on consumer spending.

Elster, which manufacturers meters for the electricity, gas and water industries, had announced a cost-cutting program as part of its efforts to tackle the economic downturn in Europe. Melrose expects to invest in Elster’s main business areas, as well as extract further cost savings from the company’s already announced restructuring plan.

“We believe that Elster is an excellent fit with the Melrose acquisition criteria,” Melrose’s chief executive, Simon Peckham, said in a statement. “Elster is a high quality business with strong end markets and the potential for significant development and improvement under Melrose management.”

Elster’s largest shareholder, Rembrandt Holdings, previously said it had reached an agreement with Melrose to sell its stake in the German company to Melrose.

Melrose said it would finance the deal through new debt and a rights issue of around $1.87 billion. Investors have already subscribed to around 60 percent of the rights issue, according to a person with direct knowledge of the deal.

Melrose’s rights issue is expected to be completed by the end of July. The deal for Elster is expected to close by Aug 31.

JPMorgan advised Melrose on the deal, and is underwriting the rights issue with Investec, Barclays, HSBC and Royal Bank of Canada. Rothschild and Deutsche Bank advised Elster.

Article source: http://dealbook.nytimes.com/2012/06/29/melrose-agrees-to-buy-german-utility-meter-manufacturer-for-2-3-billion/?partner=rss&emc=rss

$97 in New York but $40 in Las Vegas: Making Sense of Car Rentals

The cost of doing business in different markets is a big factor — including labor, real estate and the price to insure a fleet of cars. Varying tax rates can also affect the final bill, especially in places that levy special taxes on car rentals.

But the number of car rental companies that serve a particular market also plays a significant role in price. And competition is a growing issue as the industry consolidates and leaves just a few dominant companies that each own several car rental brands.

Jonathan Weinberg, president of the car rental agency AutoSlash.com, analyzed September midweek rentals booked through the site and found customers were paying about $97 a day in New York City, including taxes, versus $40 in Las Vegas and $45 in Miami and Los Angeles.

“In somewhere like Los Angeles, you have so many different vendors at the airport, and many are low-priced value providers,” Mr. Weinberg said. “There’s so much competition for customers, it tends to drive prices down.”

In Miami, which recently built a combined rental car center near the airport, 16 companies compete for customers, including more than half a dozen discounters like Payless, Advantage, E-Z Rent-a-Car and Ace. Being in the same place puts the low-priced providers on more of a level playing field, since travelers take the same bus to get to the building and do not have to wait longer for a company that cannot afford frequent bus service. A new train running from the Miami airport to the rental car center replaced the bus last week.

Another competitor in Miami is Sixt — a German company that has locations worldwide but is just gaining a toehold in the United States.

“The new consolidated Miami rental facility provided Sixt an opportunity to get in there,” Mr. Weinberg said. Other cities that have at least 11 car rental companies at their airports include Los Angeles, Phoenix and Fort Lauderdale, Fla., whereas there are only six companies at Kennedy International Airport in New York, all major brands.

Richard Broome, a senior vice president with Hertz, acknowledged that the company reacted to rates set by competitors, especially the discounters that compete with Hertz’s Advantage brand.

“The more competitors you have in a market at an airport, the more pricing competition you would expect,” Mr. Broome said, though he also cited operational costs and basic supply-and-demand issues as rate factors.

“The price to rent a car in Denver around President’s weekend will typically be more expensive than to rent that same car in Cleveland,” he said.

Local taxes are another important variable in price differences — and one that has been getting more scrutiny as the travel industry fights municipalities that tax visitors to help pay for new stadiums and other projects that do not necessarily benefit travelers.

A study of travel taxes published this spring by the Global Business Travel Association, an association of travel managers, found that Chicago O’Hare, Boston Logan, Las Vegas McCarran and Kennedy airports levied the highest taxes on car rentals — adding 20 to 25 percent to the base price of the car.

Despite this growing tax bite, one bit of good news for travelers is that car rental rates have actually declined from their 2009 peak.

“It’s not like the price of a car is dropping through the floor — it isn’t,” said Neil Abrams, president of the Abrams Consulting Group, which advises car rental companies. “Rates are below what they were, but are still relatively high on a comparative basis.”

According to the group’s weekly survey of rental prices, the average rate for a midsize car at 10 major airports in mid-August, for example, was $85, not including taxes or fees, compared with $93 at the same time last year. In 2009, the price was $103, roughly the high point for rates in the decade the survey has tracked prices charged by the major car rental brands. (The Abrams index does not include discounters like Payless.)

The reason for the recent price decline is not weak demand: Avis Budget, Dollar Thrifty and Hertz all reported positive earnings in the second quarter of 2011, in part because of increases in rental days. But with a strong market for used cars, rental companies have been making money selling their older vehicles, so they have not set prices as aggressively as they did when the recession hit.

“There’s an incentive to buy cars, maybe even more cars than you can rent at an optimum price because you know you’re going to make a lot of money at the back end,” Mr. Abrams said. “That has a muting effect on rental pricing.”

As for the effect of competition on pricing, Mr. Abrams said that even with more airports building consolidated rental car centers, discounters like Payless or Fox Rent a Car faced challenges in capturing corporate clients. “Fox isn’t in Detroit, they’re not in Boston, and they’re not in Miami or Atlanta,” he said. “If you’re a corporate customer, and you’ve got people traveling all over the place, you can’t use a supplier that can’t meet your employees’ needs.”

But business travelers renting through corporate accounts have been somewhat shielded from sticker shock by discounted rates. Ovation Corporate Travel clients, for instance, paid an average of $81 a day for a rental car in New York City in the first half of 2011 and $40 in Las Vegas. Those prices include taxes, fees and options like navigation systems.

For those who do not benefit from a corporate discount, one way to save is checking to see if the price has dropped after making a reservation, or booking through a site like AutoSlash, which does this automatically.

“Rates start out very high, and then they tend to come down as the rental day approaches,” Mr. Weinberg said. “We see rental prices fluctuating wildly.”

Article source: http://feeds.nytimes.com/click.phdo?i=f6b1f92d9c95f8b93a0a214c54bb24a8

Greece Sells Stake in Phone Company to Help Close Budget Gap

Greece exercised an agreement to sell a 10 percent stake in the state-owned telecommunications company, known as OTE, to Deutsche Telekom for about €400 million, or $585 million. The German company said it would honor the agreement.

While that sum will make only a small dent in Greece’s total debt of €330 billion, Lorenzo Bini Smaghi, a member of the executive board of the European Central Bank, said the country has marketable assets worth €300 billion and is not bankrupt.

“Greece should be considered solvent and should be asked to service its debts,” Mr. Bini Smaghi said Monday, signaling that the E.C.B. remains firmly opposed to any plan to allow Greece to stretch out its debt payments or oblige investors to accept less than full repayment, a so-called haircut.

Speaking in Berlin, Mr. Bini Smaghi offered an unusually detailed and forceful rebuttal to German leaders who are pushing for investors to share the cost of a Greek bailout. Top officials of the E.C.B. usually avoid sparring with elected officials in public, and Mr. Bini Smaghi’s comments illustrated the intensity of the debate on how to keep Greece afloat.

Restructuring of Greek debt would be costly for European taxpayers, reward speculators and discourage Greece from modernizing its economy, Mr. Bini Smaghi said.

“A debt restructuring of a sovereign may have severe implications, both for the debtor’s and the creditor’s economies,” Mr. Bini Smaghi said, according to a text of the speech. “Restructuring should only be the last resort, i.e., when it is clear that the debtor country cannot repay its debts.”

Many economists believe some kind of restructuring is inevitable, and European governments have begun warming to the idea as a way of showing their taxpayers that investors will also have to help pay for Greece.

But Mr. Bini Smaghi contested the idea that “there exists such a thing as an orderly debt restructuring.”

“More often than not, restructurings have been disorderly, harmful and fraught with difficulties,” he said.

Among other catastrophic effects, he said, Greek banks would be devastated and require bailouts that the Greek government would not have the money to finance. The problems would spread to other countries exposed to the Greek economy, and ultimately taxpayers in those countries would suffer, Mr. Bini Smaghi said. Greece would also not have the resources needed to make its economy competitive again.

“Imposing haircuts on private investors can seriously disrupt the financial and real economy of both the debtor and creditor countries,” he said.

German and French banks are the biggest holders of Greek government debt, according to data released Monday by the Bank for International Settlements in Basel, Switzerland. German banks held $22.7 billion of Greek government debt at the end of December, while French banks held $15 billion.

Mr. Bini Smaghi said a default would reward speculators who have bet on Greece’s failure, while punishing investors who have supported the country.

The E.C.B. would itself suffer if Greece defaulted, because since last year it has bought the country’s debt to stabilize bond markets. The bank owns bonds valued at €75 billion from Greece, Ireland, Portugal and possibly other countries.

But the E.C.B.’s exposure is greater than that because it also accepts the bonds from banks in the euro area as collateral for loans carrying an interest rate of 1.25 percent.

On Monday, a British research organization, Open Europe, estimated that the E.C.B.’s total exposure to the Greek government and Greek banks at €190 billion.

Critics say that the E.C.B.’s credibility has suffered because its stake in Greek debt creates a conflict of interest.

“Huge risks have been transferred from struggling governments and banks onto the E.C.B.’s books, with taxpayers as the ultimate guarantor,” said Mats Persson, director of Open Europe, a euro-skeptic organization backed by British business executives.

The E.C.B. declined to comment on Open Europe’s estimate of its Greece exposure. The bank has never disclosed what kind of bonds it has purchased.

The Greek government has begun trying to raise money by selling stakes it owns in companies like OTE, but the privatization drive has encountered fierce resistance from citizens already weary of austerity measures.

Deutsche Telekom already owns a 30 percent stake in OTE, which it bought in 2008. A Telekom spokesman, Andreas Fuchs, said that the price for the 10 percent stake is still being calculated but will be around €400 million.

Article source: http://feeds.nytimes.com/click.phdo?i=0e15914b647c76f92c5ac7218f308ffc