AT&T’s European Ambitions Include Regulatory Wish ListScott Moritz and Amy Thomson
AT&T Inc. sees new wireless technology in Europe stimulating a slumping industry with billions of dollars in network upgrades and blazing-fast mobile service, with a caveat: Some rules need to be changed.
In a glimpse of its still-forming European strategy, AT&T, the largest U.S. carrier, provided a wish list on what it would like to see from regulators to make an investment there worthwhile. During a visit to Europe today, Chief Executive Officer Randall Stephenson called for consistent policies across different countries and for airwave licenses that offer more attractive terms for wireless companies.
“How you manage spectrum policy will determine how much investment comes to Europe,” Stephenson said at the European Telecommunications Network Operators’ Association summit in Brussels.
Fragmented regulations, along with high unemployment and price wars, have dragged the values of European carriers down below their U.S. peers. Those cheaper valuations and a slowdown in U.S. growth have AT&T contemplating whether to get in on the early stages of the transition to high-speed mobile data in Europe, which has lagged the U.S. on upgrading its wireless technology.
Among the challenges for AT&T’s international expansion is convincing its own investors of the merits of the strategy. The history of cobbling together global carriers is dotted with failures like Global Crossing, which went bankrupt in 2002, and Concert, an ill-fated joint venture the old AT&T Corp. formed with BT Group Plc to sell phone, data and Internet service to companies worldwide. A weak European market also represents a risk for Dallas-based AT&T, Craig Moffett, founder of researcher MoffettNathanson LLC, has said.
Last month, Stephenson outlined the pros and cons of a European expansion to investors at a Goldman Sachs Group Inc. conference. Today he took his message to European industry officials. Stephenson said companies like AT&T need assurances that public policy can be conducive to investment in European networks, which need upgrades to long-term evolution, or LTE, technology.
At the top of Stephenson’s wish list is an overhaul of rules governing spectrum, the radio signals that allow mobile phones to make calls and connect to the Internet wirelessly. Those airwaves are considered a public good, and governments auction off licenses for their commercial use.
Stephenson said he is looking for changes to airwave ownership rules that give carriers the ability to control broad areas of territory over long periods of time so that there is incentive to build for the future. Some countries offer leases of about 10 to 12 years, compared with 30 in the U.S., and can re-auction the airwaves to other carriers when licenses expire. It’s also difficult to build a pan-European network since each country sells different portions of spectrum according to its own schedule.
“Randall is simply being transparent with investors about AT&T’s desire to expand internationally and that European wireless has long-term attractiveness,” said Kevin Roe, an analyst with Roe Equity Research LLC in Dorset, Vermont.
Stephenson also said Europe needs a market where operators can swap spectrum, letting them assemble pieces of their network to become more efficient. And he called for regulators to stop designating specific technology, such as 3G data, for certain airwave licenses, giving companies more flexibility to use the spectrum as they see fit.
AT&T has considered bids for European companies including Newbury, England-based Vodafone Group Plc, people familiar with the matter have said. It could pick up Vodafone -- now that the British company is selling its stake in AT&T rival Verizon Wireless -- for 6.3 times earnings before interest, taxes, depreciation and amortization, according to estimates from Sanford C. Bernstein & Co. That would value Vodafone at about $130 billion, based on data compiled by Bloomberg. AT&T trades at 14 times earnings.
After his presentation today, Stephenson declined to comment on potential acquisitions.
European Commissioner Neelie Kroes also called today for a revamp of the European Union’s telecommunications regulations. She’s seeking to end roaming charges for phone calls and Internet use and to make spectrum allocation more uniform and predictable.
“We have listened to industry concerns, so that pan-European deals can come onto the market, sustainably, available for all as soon as possible,” Kroes said at the event in Brussels. Her plan requires approval by EU governments and the European Parliament.
Europe has lagged the U.S. in mobile Internet performance both because of a weak economy and the lack of cohesive regulations across more than two dozen countries, said Roger Entner, an industry strategist with Recon Analytics in Dedham, Massachusetts.
Stephenson’s prescription for Europe: Be more like the U.S.
“In six years, Europe has gone from first in network technology to one of the last among developed countries,” Stephenson said. “I’m strongly of the mind that it will evolve here.”
AT&T is betting that the European Union is shifting its view, Entner said.
“Regulatory flexibility has helped the U.S. take world leadership on technology,” Entner said. “Right now I think European regulators would welcome AT&T coming to Europe, given the investment intensity they’ve shown in the U.S.”