Telecom Sector Set To Dial International Long Distance Arena: European Consolidation Will Come First, Then Issuers Will Look Globally in High Tech Race, Experts Say

The flurry of activity in telecommunications and the returns made by investors shows no signs of slowing down, and it looks to be more of a European game for the rest of the year, analysts and buy siders said. And after that, it finally will become a global arena.

And since telecom is so capital intensive, the industry will turn to a multitude of financing sources, analysts said, including high yield, venture capital, IPOs and vendor financing.

The European telecom market is, at the moment, more vibrant than its U.S. counterpart and portfolio managers seem more willing to put money to work, said Gary Jacobi, analyst at Deutsche Banc Alex. Brown.

That stems partly from the European buy side looking at the frenzied U.S. sector over the past couple of years and getting a case of "me too," analysts said, but there also are other more concrete reasons.

One is simply the penetration rate in the different markets. The wireless part of the industry, for example, has a much bigger footprint in parts of Europe. Compared with the 30% market penetration in the U.S., parts of Europe - such as the Scandinavian countries - have a market ratio closer to 65% to 75%.

Also helping the European market's growth over the next year is the technological platform. Unlike the U.S., where there are basically three different technologies being used, Europe has just one. And that makes it easier for customers who travel to use their phones wherever the go, thus making corporate expansions into new areas easier.

The three U.S. technology platforms used to deliver wireless calls are time division multiplexing access (commonly called TDMA); code division multiplexing access (CDMA); and global systems for mobility (GSM).

Investors said each system has its proponents and naysayers, but the fact is that GSM is the standard in Europe. The CDMA technology has the most proponents in this country, although AT&T Corp. uses competing TDMA.

After a wave of U.S.-style consolidation in Europe this year, companies will start to look at new continents. European issuers will look to the U.S. to expand and vice versa and when that happens, those obscure acronyms likely will play a part in future acquisitions, investors said.

As of now, VoiceStream is one of the few major U.S. telecoms that uses the GSM platform, and that probably will make them a key player in the acquisition game. But whether it means it would be an acquirer of a European company, or the target, is uncertain, analysts said.

In fact, that "predator or prey" question is unclear for most of the companies worldwide, except for the giants like AT&T, analysts said.

But the one thing for certain is the worldwide hunt will be on, more so than it is today and hardly anybody will be exempt. Indeed, the global telecom marketplace definitely will become a scenario of "eat or be eaten," Jacobi said.

The first likely area to see this international consolidation is the wireless sector, several sources agreed. And after that, data transmission players probably will be the second large category, followed by the traditional phone companies.