Funny things, telecoms companies. Sitting at the forefront of the IT revolution, they are as new economy as they come. But despite all their newfangled technology and snappy marketing speak, these are industrial giants. Vodafone/Mannesmann, the Orange flotation, British Telecommunications (BT), NTL – the list of big acquisitive names goes on and on.
But in the same way as others in the technology, media and telecoms sector, they are feeling the pinch. For some, such as NTL, it is because they have become over-leveraged after a lengthy period of acquisition. For others, such as BT, it is a whole host of problems, from run-ins with regulators to simply being too large. For the rest, it is part of investor mistrust in technology stocks.
But there is another contributing factor unique to the telecom downfall – 3G licences. These have been real money-spinners for some governments – the UK and German authorities have already cleaned up – but things started going wrong in France late last year. The government announced its auction and four companies – Vivendi, Bouygues, France Telecom's Orange and Suez Lyonnaise – decided to bid. But concerned about the prices the French government was planning, two of the companies – Bouygues, advised by Freshfields Bruckhaus Deringer and Denton Wilde Sapte, and Suez Lyonnaise – decided enough was enough and pulled out, effectively killing off the auction.
But this is not another dotcom downfall. The consumer, the business, even the state, needs communications, and telecoms is not going anywhere. What it will do is adapt. And there is no better example of this than the situation in Hong Kong.
Landlines are not exactly practical in Asia – too many mountains, too much sea, people living in remote areas. The revolution in telecoms, and specifically in mobile telephony, has been huge in Asia.
So telecom companies continue to be immensely active in Asia. Pacific Century CyberWorks (PCCW), for example, has kept Simmons & Simmons' Hong Kong office in pocket during the past 18 months or so. It clocked up three big-ticket deals in 2000 alone, including a merger with Cable & Wireless HKT. Also in Hong Kong, Hutchison Whampoa's $3bn (£2.1bn) deal with Vodafone last September was the largest-ever exchangeable bond issue in Asia.
Outside of Hong Kong, earlier this year Vodafone continued its love affair with all things Asian by acquiring a 15 per cent stake in Herbert Smith-advised Japan Telecom for $2.1bn (£1.5bn). In Singapore, Virgin Mobile is in talks to set up a joint venture with SingTel, which is keeping Ashurst Morris Crisp busy.
On top of all this, the Hong Kong authorities have learnt from the mistakes of Western governments when it comes to 3G licences. Instead of rushing towards a pot of gold, they are opting for a more conservative auction process.
A hybrid auction will be held later this year. It will include a prequalification process and royalty payments based on turnover rather than cash. It will also include an open network requirement which will allow existing 2G operators to participate in 3G, even if they do not win a licence, neatly avoiding the sort of problems BT and its coveted exchanges are facing.
This is a step forward for the telecoms industry. The open network element will allow smaller players to stay in the game, although it could also see a delay in consolidation, and so a drop in corporate work. But it should encourage a far more competitive, and hence active, market. It will also be interesting to see how other jurisdictions, both in Asia and beyond, respond to Hong Kong's approach.
There have already been some amazing telecoms deals, often with a Western adviser involved, and there is bound to be a good deal more to come. So while the West bemoans its own state of affairs and busies itself counting dotcom failures, back East there is a telecoms industry happily moving along and lining the pockets of lawyers along the way.