23 July 2001
24 February 2014
6 December 2013
7 October 2013
9 July 2014
15 October 2013
Short, bright, sunny spells with temperatures near the top of the scale, interspersing long and more dominant periods of blustery, grey and wet misery. The British summer is a sharp metaphor for the current situation in the telecoms sector.
While perhaps not as dramatic as the collapse in internet stocks, telecoms have taken a battering over the past 12-18 months. The brief euphoria of the 3G licence auction quickly turned into worries about the emperor's new clothes. Orange found that, despite having one of the best-known brands in the sector, people didn't want to buy its shares; while BT has suffered a spate of negative publicity.
Despite this uncertainty, or in a lot of cases because of it, telecoms has seen some groundbreaking deals. The lawyers that a few years ago were working with the bright new telcos as they broke into a dynamic market are now having to undo their work as the sector undergoes severe rationalisation. It is this type of work that has fuelled most of the leading deals. Companies are finding that the debts they took on at the height of the market are now dragging them down with it. This is leading to some interesting repositioning. Eircom looks certain to become the first significant national champion to be bought, even if the identity of the purchaser is still uncertain. KPN and Belgacom look set to be heading down a similar path, while closer to home BT is working day and night to reduce its debt mountain, with the ongoing sell-off and leaseback of its entire property portfolio and the collapse of its Concert joint venture with AT&T being symptomatic of this. BT is also fighting a war on two fronts regarding the development of high-speed internet access, with Olswang doing sterling work on the Friaco (fixed-rate internet access connection) side and Field Fisher Waterhouse hammering away on access to the local loop.
However, not all of the energy is negative. In the Polish and Slovakian telecoms privatisations, Eastern Europe has seen its two largest and most successful privatisation deals; France Telecom and Deutsche Telekom still dominate the European scene, but new players continue to enter the European market, as McDermott Will & Emery's work with Verizon demonstrates. "Maybe I'm just an eternal optimist," says Stephanie Liston, McDermotts' head of telecoms in the London office, "but I think that the fundamentals in the market are excellent. There's going to be a period of consolidation and there'll be some losers in the market, but there are also going to be some real winners." In the The Lawyer's top 10 telecoms deals, we take look at both.
1) BT rights issue
Linklaters & Alliance advised on the multibillion-pound, record-breaking BT rights issue in May 2001, the largest in UK corporate history. Each shareholder on the register on 9 May was offered three new BT shares, at £3 per share, for every 10 shares already held, the price representing a 47 per cent reduction on the share price the day before the issue was announced. This was the first issue through Crest, the London Stock Exchange's automated dealing system. Despite its size, the deal was not underwritten in order to keep costs down.
The issue is part of the well-documented restructuring of the company in the face of massive debts following the 3G licence auction. And BT is not alone in facing its debt mountain; it is an industry-wide problem following the ambitious expansions on the back of the golden years of the late 1990s. BT is fighting hard to retain investor confidence, however, and this issue is only part of a considerable programme of disposals, deals and restructuring being undertaken by the company. It was followed by the £2.14bn sale of Yell.com to a consortium of private equity firms and the company's decision to end the loss-making Concert joint venture with AT&T.
The Linklaters team on the rights issue was led by corporate partners Jeremy Parr and David Barnes. It was a good month for the Linklaters corporate team, which also advised Vodafone on its own £3.5bn rights issue in the same week.
An Allen & Overy (A&O) team led by Jonathan Gould and Richard Cranfield, both corporate partners, advised Cazenove and Merrill Lynch as the joint financial advisers and brokers to the issue.
2) CityLink Telecommunications and London Underground deal
Value: up to £500m
Linklaters advised CityLink Telecommunications on a deal to provide moving-image advertising on the London Underground.
The deal will result in moving-image advertising in place of posters at locations throughout the London Underground by the end of 2001. London may be some way from a 21st century transport system, but at least passengers will be entertained while they wait for it to arrive.
Specially designed projectors for the new system, called XTP (cross-track projection), will be installed throughout the course of this year. They will enable a wide range of changing images - from still pictures to full-motion video - to be projected onto large screens opposite the platforms.
The CityLink consortium was formed to replace and manage the radio and transmission services for the entire London Underground Tube network under the Connect PFI Project. The Connect PFI itself is designed to provide an integrated digital radio communications system to improve the ability of London Underground's staff to communicate with customers and each other. The CityLink deal is a spinoff from that due to the surplus capacity in the fibre-optic cabling being laid as part of the Connect project. The deal is the first significant third party opportunity entered into as a result of the Connect PFI. Indeed few, if any, third party opportunities of this size have ever been concluded in relation to PFI deals.
The Linklaters team was led by IT and communications partner Graeme Maguire and included rising telecoms stars Cameron Craig and Stuart Bedford. Freshfields Bruckhaus Deringer advised London Underground with a team led by Perry Noble.
3) Enron Broadband Services' bandwidth trading exchange
Enron Broadband Services, advised by Simmons & Simmons, has launched an online bandwidth trading market in Europe. Bandwidth transactions that used to take months to close can now theoretically be concluded within minutes. It should be the first step in transforming bandwidth trading into a commodities market, and eventually a derivatives market.
Bandwidth trading is carried out via the EnronOnline trading platform. The site enables registered customers to log on and buy and sell bandwidth in a few clicks. STM-1 capacity is available with contract durations of between three and 12 months and forward delivery ranging from 2-14 months. Once a transaction is closed, settlement and provisioning are handled offline.
To provide the physical infrastructure to enable bandwidth trading, Enron had to install pooling points, or switching and interconnection facilities in Amsterdam, Frankfurt and Paris, to provide the physical interconnectivity between trading principals. To facilitate further the commoditisation of bandwidth, Simmons also advised Enron on developing standard terms and conditions, which provide firm start dates and service level agreements backed by liquidated damages.
Setting up the market involved an array of separate negotiations with different bandwidth providers. Head of telecoms at Simmons, Tom Wheadon, led the team throughout the various negotiations, assisted by senior assistant Rhys Williams.
4) Lattice Group's joint venture with Thames Water
Lattice Group, the gas pipeline company that demerged from British Gas in October 2000, and Thames Water have set up a joint venture that will use London's sewer network to build a 100km fibre-optic network designed to meet the demand for broadband services. Due for completion by 2002, the network will link up with Lattice Group's national fibre-optic network, currently being built by its telecoms subsidiary 186k.
As wireless technology continues to grab all the headlines, one might think that cables were a relic of the past. This deal highlights that cables still have a huge role to play in developing the telecoms infrastructure, and is also indicative of some of the innovative ways in which utilities are expanding into the telecoms sector and finding extra revenue sources by exploiting the communications potential of their own infrastructures.
Slaughter and May, led by partner Graham White, acted for Thames Water, while Linklaters advised Lattice and 186k. McDermott Will & Emery will advise EigerNet, the joint venture formed out of the deal, on an ongoing basis.
5) Marconi and Railtrack Euromast joint venture
Railtrack joined forces with Marconi in a joint venture, Euromast (subsequently renamed Ultramast), which will utilise Railtrack's extensive property portfolio, as well as Marconi's existing property rights, to construct approximately 5,000 shared masts supporting the deployment of 3G broadband wireless networks. Simmons advised Railtrack Telecoms Services, a wholly-owned subsidiary of Railtrack Group.
Railtrack also took a stake in Ipsaris, formerly Fibreway, the high-capacity optical network subsidiary of which Marconi owned 92 per cent. Ipsaris operates a fibre-optic network of over 6,500km across the UK and Europe and will extend this network on to Railtrack land over the next 12 months. It will be the connectivity partner to Euromast.
This was typical of some of the creative ways that the telecoms companies are looking to cost-effectively develop the 3G networks and services, and provides evidence of the innovative manner in which the network is being sited. A similar deal was effected between Marconi and British Waterways Board to open up the canal network for the siting of 3G masts.
The Simmons team was led by head of corporate Jerry Walter and corporate partner Jo Weston. Property and regulatory advice was led by partners John Qualtrough and Clare Potter. Marconi was advised by A&O, led by corporate partners Richard Cranfield and Helen Harrison-Hall. A&O also subsequently advised Marconi on its agreement to reverse Ipsaris into Easynet Group, valuing Ipsaris at approximately £357m and the enlarged Easynet at around £475m.
6) Pacific Century Cyberworks' takeover of Cable & Wireless HKT
Value: $ 35.9bn (£25.6bn)
Simmons advised Pacific Century Cyberworks (PCCW), a Hong Kong-listed communications company founded by entrepreneur Richard Li, on a number of significant Asian deals over the past 12 months.
The most notable was in August 2000, with PCCW's acquisition of Cable & Wireless HKT, advised by A&O, for £24.3bn - Asia's largest merger outside Japan and the first leveraged acquisition funding for a quoted Hong Kong company. The new company was listed on the New York Stock Exchange in September 2000 and is now Hong Kong's leading provider of local and international services and internet access, the second-largest operator of mobile services and a major player in broadband services. It is the third-largest company on the Hong Kong Stock Exchange.
Simmons pulled together a large team comprising lawyers from its Hong Kong and London offices; the firm advised on all aspects of the deal after being recommended to PCCW by investment bankers Warburg Dillon Read. A 24-hour London command centre was also set up to take advantage of the two time zones.
The Hong Kong team was led by head of corporate Nick Norris. Head of corporate finance in London Stuart Evans flew to Hong Kong to advise on strategic issues, and Nicholas Fisher flew to Hong Kong to lead the banking team on the $12bn (£8.5bn) syndicated bank financing, which involved more than 50 banks and was the largest ever syndicated facility in Asia.
7) Centrica's acquisition of One.Tel
The acquisition by Centrica of One.Tel plc, the UK arm of Australian telecoms company One.Tel, more than doubled the size of its telephone business in one go. One.Tel, launched three years ago by media heirs James Packer and Lachlan Murdoch, has 650,000 customers in the UK and profits were around £8m on sales of £100m in the year to June 2001.With a total consideration of £58m, including assumed liabilities, the deal makes Centrica the largest provider of indirect telecoms services in the UK, with around one million active customers.
Ashurst Morris Crisp advised Centrica, with a team led by corporate partner Jan Sanders. One.Tel's advisers Baker & McKenzie used a team led by telecoms partner Peter Strivens.
The deal is typical of the current state of the industry, with considerable ongoing consolidation and restructuring. According to Strivens, the UK arm of One.Tel was a pretty tight ship and a profitable operation, but unfortunately the parent company in Australia had debts of £225m and went into liquidation.
"The deal is typical of the kind of restructuring going on, and the way it was done is an indication of the rescue culture and strategy that the insolvency practices are adopting and pushing very hard at the moment," he says. "Even where an organisation has effectively failed, as One.Tel had with its parent in liquidation, they'll work very hard to avoid insolvency proceedings and maintain the integrity of subsidiaries and find a rescue remedy that will enable them to be sold off whole." Given that expectations for a successful deal were only running at about 20 per cent to begin with, its successful closure was a surprise to many in the sector.
8) Nortel Networks/Cable & Wireless voice over IP project
Value: $1.4bn (£999.4m)
Voice over IP (VoIP) protocol is expected to be the future of fixed-line telecoms. It is the converting of voice communications to data so that it can be carried over the internet using the standard internet protocol (IP). In short, it means that one set of cables will be able to carry data and voice communications at the same time, rather than the multiple cables currently required. All the main telecoms manufacturers have expressed their belief in VoIP. Indeed, a recent Oftel survey revealed that among the big players only Ericsson was still developing traditional switch technology. Until this deal, however, none of the companies had actually made any formal, committed move towards VoIP.
With this deal, Cable & Wireless, advised by Shaw Pittman, has pre-empted the market. It has contracted Nortel, advised by Baker & McKenzie, to move all Cable & Wireless voice traffic to VoIP within the next three years. Nortel will plan, implement and operate the new network throughout Europe and North America over the next 10 years. "It's indicative of a clear-cut trend in the industry and a precursor of what's going to be happening in the future," according to telecoms partner Peter Strivens at Baker & McKenzie, who led the team together with Richard Hawtin.
Nortel's highly-regarded in-house team of Lynne Powell and Simon Citron led the transaction.
9) Leveraged buyout of Ericsson's handset division by Apax Partners
The handset division, under the name Ericsson Enterprise Solution Channel, distributes, maintains and supports telecoms products sold under the Ericsson Enterprise brand. The venture was spun out of the main telecoms group. Conducted under Swedish law, the deal was notable for the fact that it involved the separate acquisition by Apax of companies in 18 different countries, many involving antitrust filings, and Clifford Chance was instructed in the 15 countries in which it had offices.
"We had to draw up one umbrella agreement and then under that 18 separate sub-agreements for each jurisdiction," says lead partner David Pearson. Where there was no Clifford Chance office, it worked with local firms.
This deal represents the biggest single investment of Apax, the sector-based private equity house that has a particular focus on telecoms.
Apax was advised by a Clifford Chance team led by corporate partner David Pearson, which edged out Ashursts, the other adviser on the deal.
Interestingly, Clifford Chance was able to negotiate the whole thing under Swedish law, despite not having a Swedish office. Swedish firm Vinge was asked for a second opinion on certain issues, but did not officially appear on the deal.
Along with Pearson, the Clifford Chance team in-cluded assistant Tim Wright (who is now a partner) and finance partner Richard Sha-rples.
White & Case advised on the financing. Mannheimer Schwartling advised Ericsson.
10) France Telecom's acquisition of Equant
Value: £5.51bn (£3.9bn)
This deal created a truly global telecommunications service provider, combining Equant with France Telecom's own Global One.
The new organisation, still operating under the Equant name, starts with a 10 per cent share of the $28bn (£19.9bn) addressable corporate communications market for large multinationals, which is growing at more than 20 per cent annually.
Equant now has unmatched global reach, with a data network connecting key business centres in 220 countries and local support in 145 countries. Its customers include an impressive two-thirds of the world's top 100 companies.
With the acquisition of Equant, France Telecom has consolidated its formidable position as a major player in the global market. Its core brands now include Orange for mobile, Equant for corporate communications and Wanadoo for internet services.
Linklaters' Paris office led the deal through partners Thierry Vassogne and Marc Loy. Equant was advised by Cleary Gottlieb Steen & Hamilton, and A&O's Amsterdam office advised on the Dutch aspects of the deal.