Eastern Europe's alternative fixed-line operators lured investors during the global telecoms boom with plans for huge growth, only to burn them later with debt defaults and free-falling stock prices.
Now these start-ups, while humbled and still ailing, could be bargains for steel-nerved investors if they succeed in reducing their debt burdens and merge to reach critical mass, analysts said.
They should also benefit from telecom market liberalization before European Union entry, expected in 2004 for many of the region's countries.
"Valuations of alternative operators are low now, and the regulatory environments are good, so attractive returns are available," said Izzet Guney, the head of the telecoms team at the European Bank for Reconstruction and Development. "But that doesn't help if nobody has a dollar to invest."
Buyers remain scarce as large Western telecoms companies are unable to afford new investments. Even if they could, former state monopolies with dominant market shares and fast-growing mobile operators appear to be better buys.
"In the current climate, people are going for quality, which means stable earnings and market share," said one venture capitalist.
In Poland, the Czech Republic and Hungary, former state monopolies still control about 90% of the fixed-line market.
Mergers to form stronger competitors to the dominant former monopolies is an obvious answer for many alternative operators, but many owners are not yet desperate enough to accept fire-sale prices.
In Poland, Netia is still working out a debt-for-equity swap, and copper miner KGHM Polska Miedź is widely expected to write off about $450 million of debt owed by its subsidiary Dialog.
Netia, Dialog and other Polish operators have signed cooperation pacts, but said it's too early to talk about concrete capital links.
"In general we support consolidation, but at the moment each operator has its own financial problems," said Netia's spokewsoman Jolanta Ciesielska.
- Reuters
