When IPOs Go Bad

The Orange oops serves notice to all carriers.

Orange, France Telecom's wireless unit, stunned the telecom sector when its IPO ran aground with dismal investment results. Its shares launched at 9.5 euros and closed below that at 9.4 euros. This dragged down France Telecom 5% and accounted for an overall drop in the European telecom sector.

Last year, France Telecom purchased Orange from Vodafone AirTouch for about $36 billion. It planned to assume its $8 billion debt, but thought it could wipe the slate clean when it spun off the unit and combined it with other wireless assets.

Orange isn't an isolated instance of investor indifference and intolerance. Deutsche Telekom recently hit a new low of roughly 28 euros. Some suggest that this could sink the VoiceStream Wireless proposed merger, as VoiceStream shareholders could renegotiate the value of the stock averages.

Quite a contrast to last year's IPO for AT&T Wireless tracking stock — one of the most successful in the United States.

So what happened with Orange? And how do U.S. carriers prevent the effect from becoming a global one?

One huge driver was the European auctions. Eager companies seemed to run amok as they lined up and bid more than $250 billion for 3G licenses. Globally, wireless carriers implicitly know that 3G will be their manna from heaven. It will mobilize the value of the Internet and the vast information resources brought to bear in the Information Age. No question about that paradigm. However, strategy and timing are critical linchpins: The right combination will make it sail; the wrong one could sink it faster than a submarine crashing into a Japanese fishing boat.

The European market, in its quest for global wireless supremacy, pressed forward too early. Sure, the embrace of wireless phones there is total, and the success of SMS is undeniable. However, that doesn't guarantee a 3G home run.

U.S. carriers, by contrast, have seemed at times plodding in their approach to 3G. However, what once seemed plodding may now appear wise. The 3G fanfare began whipping itself into a frenzy shortly after most of them dipped significantly into their banks for 2G-spectrum funds. Two years ago, most of them, while agreeing about the excitement of a 3G future, screamed, “Whoa, Bessie.” They demanded that manufacturers and vendors uncover ways to help them wring more revenue out of their 2G investments.

But U.S. carriers aren't out of the woods yet. They still face the danger of falling into the same trap. The American auctions are just around the corner. While they're spoon-feeding the U.S. consumer with their 2G morsels of the wireless Internet, they clearly are hoping to addict them with the same sexy allure that made mobile voice a raging success.

Therein lies the trap of the wireless Internet allure. The Europeans bet their farms on 3G. U.S. carriers are ballyhooing the merits of the wireless Internet. Virtually all of the current consumer sales and marketing outreaches confirm this notion as carriers proclaim how consumers can benefit from this mastery of data. All of this seems to be at the sacrifice of the core business.

3G is there for the taking, no question. Yes, carriers have their hands full upgrading their networks and preparing for the IP future. However, wireless data is not the cornerstone of their business, nor should it be treated as such.

Carriers must continue to commit resources and pitch efforts at building their primary business by adding voice subscribers and earning their undying loyalty. Otherwise, when the carriers put their hands out asking for resources and investment, the world markets and the consuming constituency may do as they did with Orange and say, “So what?”

Would you invest in Orange today? Send comments to rhonda_wickham@intertec.com. Also, visit our Web site at www.wirelessreview.com, a www.telecomclick.com site.