A tale of two telcos

Austria Telekom made its Vienna and New York debuts this morning. Its asking price, $14, was at the bottom of the scale but that didn't prevent a rocky day. At 16.00 (GMT), it stood at $13.25.

Telefonica's mobile arm, Moviles, goes before Spanish investors tomorrow morning hoping for the best but preparing for the worst. It too has set its sights as low as possible.

It is not difficult to identify the overriding problem here - timing. The market doesn't like telcoms stocks.

The Dow Jones Telecoms Index has fallen 30 per cent since April and there are few signs of an upturn anytime soon. Telefonica says this will be its last flotation until at least next summer, tacitly acknowledging that Moviles is far from in the right place at the right time.

So, allowing for the hostile conditions, what are we to make of these two firms?

While very different, both have redeeming features which could make this week's valuations seem like a bargain twelve months from now.

Austria Telekom may feel like a provincial player in a pan-European market and its debts, flabby organisational structure and flat sales are clearly problematic. Nevertheless, its quasi-monopoly position has advantages too. It still owns 80 per cent of Austria's fixed-line customers and 53 per cent of mobile users. These are numbers a new entrant would die for.

Its fixed-line business remains a cash cow that can be used to take the company into different areas. In technology terms, that means internet provision and data services. In geographic terms it means turning East. Croatia, for example, is right next door and ripe for growth.

If Austria Telekom is provincial Moviles' parent, Telefonica, is positively global. With half of its 41 million fixed line and 20 million mobile customers outside Spain - many outside Europe - it has serious leverage.

The company has proved it has a mature strategy, too. Not only has it invested E6bn on UMTS licences, another of its subsidiaries, the ISP Terra Networks, has made a canny alliance with Lycos, the portal and search engine firm. With content providing the missing link between mobile and internet technologies expect some similar alliances involving Moviles soon.

If both these telcos can avoid getting too badly bruised during these unforgiving times we should see signs of recovery in 2001. Having said that, the reason they are both at market today is because back in the bleak days of April and May, November looked like a beacon on the horizon.