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Financing telecom companies: the European
angle and experience Laurence Jacobs
Allen & Overy
29th October, 2001
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Introduction - Allen & Overy
Global practice - 24 offices 400 partners worldwide - finance,
corporate, capital markets 200+ CMT lawyers worldwide
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Introduction - Allen & Overy
Leading “telecom finance” practice
In 2000, advised on £100bn + telecom finance deals
3G bids (Wind, Mobilcom, Telefonica, Telecom Italia, Hutchison, Deutsche Telecom, One2One)
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Introduction - Allen & Overy
Investment grade deals (Vodafone - Mannessman, Racal - Global Crossing, KPN Finacings)
Vendor financing
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Introduction - key issues in European telecom finance
3G licensing
Impact of licence fees
Debt finance and taking security
Vendor financing
Managing the risk
New structures
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Country Licence Issued Licensing Process No. of Licences Total Price
UK April 2000 Auction 538.475 bn
Germany August 2000 Auction 6 50.8 bn
France July 2001 Beauty contest and 4 (only 2 out of 4 9.8 bn + admin fees
payment successfully issuedat first attempt)2
1. First 3G licences issued
2. Only 2 operators bid in the initial beauty contest. The French government are currently attempting to issue the remaining licences
3G Licensing - licence fees
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3G Licensing - costs
Average price per person, in euros
652620
361
270
242
170
0
100
200
300
400
500
600
700
%
UK Germany Spain* France** Italy Netherlands
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3G Licensing - debt burden
Debt of the major European telecoms companies
bn
19
61
39
56
14
48
20
27
5
22
9
19
0
10
20
30
40
50
60
70
FranceTelecom
DeutscheTelekom
BT Telefonica KPN Telecom Italia
Dec. 1999
Dec. 2000
Source: Standard & Poor's
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3G Licensing - rollout requirements
Licence requirements
UK 80% coverage by 2007
Germany 30% coverage by 2003; 50% coverage by 2005
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3G Licensing - debt finance
Limited recourse finance
Taking security over 3G licences
Sponsor support/guarantee
corporate security
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3G Licensing - costs/debt control
Disposal of non strategic assets
Outsourcing
Securitisation
Infrastructure sharing
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Vendor finance - growth in the vendor finance
market win sales
competitive pressure
develop customer relationships
open new markets
to make money from finance
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Vendor finance - structures for vendor finance
unsecured extended payment terms
medium term finance (loan) operating lease finance lease vendor supported third party
finance
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Structures for Vendor Finance
(A) Unsecured extended payment terms
Supply
Supplier Finance Supplier
Customer
Deferred Payment
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Structures for Vendor Finance (cont'd)
(B) Medium term finance (loan)
Supply
Supplier Finance Supplier
Customer
Payment
Security?Loan
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Structures for Vendor Finance (cont'd)
(C) Operating lease
Payment
Periodic rentals
Supplier Finance
Supplier
Customer
Operating lease
Supply
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Structures for Vendor Finance (cont'd)
(D) Finance lease
Payment
Lease rentals (amortise purchase price)
Supplier Finance
Supplier
Customer
finance lease
Supply
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Structures for Vendor Finance (cont'd)
(E) Vendor supported third party finance
Purchase Price
Supplier Finance
Supplier
Customer
Supply
Bank
Counter indemnity
Security?
Loan
Guarantee
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Vendor finance - commercial issues
credit exposure intercreditor issues customer relationship costs tax and accounting
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Vendor finance - legal issues
regulatory compliance due diligence security conflict between role of
supplier and lender
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Vendor Finance - pay as you grow
Capacity based PAYG Utilisation based PAYG
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Conclusion
Financiers
challenge the business model
focus on security
Operators and manufacturers
challenge the business model
cost management