The telecoms message is set to stay gloomy

AFTER yet another terrible week for telecoms, it may be tempting to think things can't get any worse. Surely, all the bad news is out?

Investors know all about the problems of third-generation mobiles that have sunk Vodafone's share price. They know all about the debts that hang like albatrosses round the necks of France Telecom and Deutsche Telekom.

It is risky to say things can never deteriorate. Even more miserable scenarios can be contemplated. In mobiles, for example, a worst-case scenario would be that mobile data fails to take off but that the operators still pile on investment in the belief that it will.

As for the old fixed-line operators, the nightmare is that their market erodes as customers switch to using mobile phones. Then they won't even be able to rely on cash flow from their trusty old business to pay their interest. There were signs of such fixed-to-mobile switching in last week's France Telecom results.

That said, these nightmare scenarios don't look likely. Are mobile groups really going to keep pouring money down an open drain after the hell they have been through in the past two years? As for the fixed-line business, if there really is large-scale fixed-to-mobile switching, that has got to be good for the mobile companies. It is hard to have it both ways.

Don't expect a quick bounce. The merciless grinding-down of corporate egos is still not complete. France Telecom's Michel Bon, for example, has yet to eat his words and launch a rescue rights issue. Sir Chris Gent at Vodafone has so far resisted a write-off of £50bn or so. Not before this duo capitulates will there be a clear buying signal.

Flotations rush may spoil stags' party

THERE was a time not so long ago when flotations were big events. Investors scrambled to buy shares in the latest 'hot' issue, and newly listed stock soared to huge premiums on the first day of dealing.

Well, that was then. There haven't been many flotations since the technology bubble burst two years ago. In the first quarter of 2002, the volume of money raised in European primary offerings was down 71% on the same period the previous year. But a few companies have now raised their heads above the parapet. The reception they are getting is very different.

To say investors are sceptical about new issues is putting it mildly. Most have bad memories of the duds they bought in 2000. They are allergic to non-dividend-paying growth stocks - particularly those involved in telecoms or technology. Just look at the mauling meted out to software company Detica when it floated last week. The shares were sold for less than the price range and still fell to a discount.

Of course, few growth companies are looking to float. On offer are mainly boring, consumer companies, mostly being sold by private equity firms. In normal times large, stable firms like these would not find it hard to float. The trouble now is that too many are trying to do so in a big rush.

Some may succeed, such as HMV Media, by dint of being flogged cheaply. But not all will. Until fund managers start wanting to put more money into the equity market again, demand for new issues will remain sluggish. Stags beware!

Two sides to the Marconi coin

A LITTLE-KNOWN footnote to the Marconi mania: the Royal Mint issued a £2 coin with the near-bankrupt telecoms manufacturer's name on it last year.

On one side is the Queen's head; on the other a series of circles linked by rays of pulsating electricity. Many shoppers have probably fingered the coin without working out what it means. To do that, you have to read the fine print around the edge: 'Wireless bridges the Atlantic - Marconi 1901'.

The coin was produced to commemorate the centenary of Guglielmo Marconi's first transatlantic telegraph. It was presumably minted in 2000, when Marconi's share price was riding high. At the peak, it would have taken seven £2 coins to buy a single share. Now just one coin would buy 17.

Hugo Dixon is Editor of www.breakingviews.com