here two or three years of negative to stable

COLT Telecom Group, the European operator of Anglo-American origin, is ten years old. Created in 1992 by Fidelity Investments, one of the most important pension funds and U.S. investment, the alternative operator is established in London in 1993 under the name of "city of london telecommunications", benefiting the first European market liberalised since barely a year at the time (the monopoly British Telecom/Mercury (1) having been removed in 1991). It is in February 1994, to launch its first services switched exactly 10 years now, that Colt has signed its first agreement for interconnection with the British operator, which had been privatised 10 years ago (1984) by the Telecom Act of revel. Ten years after have been inclined on the baptismal funds by the wealthy American family Johnson, Colt Telecom is moving finally towards - planned "from the year 2006" - profitability, with a free cash flow expected to be positive as early as next year.

A "long-term" investment of Edward c. Johnson III

For the first time, the pan-European operator is 2005's goal of self-financing, although profitability was eventually delayed for four years from the initial forecast. For the moment, the profit before financial interests, taxes, depreciation, depreciation, market exchange, sale of infrastructure and loads (2) has ceased to be positive for four years to progress by 128 in 2003 and almost EUR 243 million. As the sales, at EUR 1.733 billion at December 31, against... EUR 0.04 million in 1993 (see table p. 4). According to our information, the France generates a little more than 14 of the revenues of the Group Colt Telecom in Europe, or about 250 million euros in 2003 (3). Colt cash amounted to 1,192 billion euros, while cash consumption was reduced in 2003 to some 45 million euros. And, despite the refund last year of first bonds for a total of 215 million euros. Despite heavy deadlines for repayment of bonds in perspective, involving a total of 1.6 billion euros by 2009, Edward c. Johnson III - the Dean of the Johnson family, and son of Edward c. Johnson II, which was at the origin of the creation of the Fund Fidelity in 1947 - may be pleased to see the end of the tunnel of its investment "in the long term." Billionaire American of Massachusetts, at the head of a personal fortune estimated at nearly $ 5 billion, is the 85th largest fortune of the world. With his daughter Abigail Johnson, itself at the 31st world position with a fortune estimated at 9.8 billion (4), he led the famous pension funds and investment to the heritage not less than 988 billion dollars in 2003. At the age of 73, he finally sees his Telecom investment of a decade ago begin to bear fruit. Fidelity has initially invested approximately EUR 150 million from 1992 to 1996, and then, in December 2001, about 440 million additional euros (5).

Fidelity: Abigail Johnson successor

COLT Telecom is now 55 owned by three entities of the powerful Fidelity Galaxy (see chart at p. 3). Edward c. Johnson III is, since 1977, President and Chief Executive Officer (CEO) of Fidelity but also directly shareholder of Colt Telecom via Strategic Advisers, a subsidiary of Fidelity Management & Research Corporation (FMR Corp.), the first shareholder of Colt Telecom. When Fidelity began 30 years ago, in 1974 exactly, to market its public pension funds, "technology and telecommunications have played a major role in the success of the company", said the entourage of Edward c. Johnson III letter of telecommunications has contacted. While we are told, "a plan is in place to ensure Fidelity Executive succession" - all eyes turned to her daughter Abigail Johnson-, the son of the founder of Fidelity will never forget that "telecommunications were not only important for the heart of activity of Fidelity but also seen as an investment opportunity", as evidenced by its investments in various operators over the years (see box p. 2).

COLT is a survivor

Edward c. Johnson III can be to have accompanied by Colt Telecom to safely cross the ten years of existence, and including the last three acute crisis on a relevant market a time as "affected". Against winds and tides, despite the evaporation of the pension fund $ 100 billion, Fidelity has remained... faithful to its telecoms investment "in the long term", despite the painful downturn of the market. COLT Telecom is survivor, while other pan-European operators have gone through profit and loss: Global Crossing, GTS Ebone, KPNQwest, Carrier1, Star Telecom, Vine Telecom, etc. (6). Not to mention the high-profile bankruptcy of Worldcom. The title has crossed in the stock market turbulence zones, from a record market capitalization of EUR 40 billion in March 2001 to EUR 627 million in October 2002 to today at EUR 2.1 billion (see chart p. 5). What give the Vertigo! At the beginning of the collapse of the "bubble", mid-2000, Colt Telecom also surprised his world by announcing the resignation of his historic President, Paul Chisholm. "Colt will provide benefits in 2002", had promised since 1998 in an interview with les Echos (7). It is Peter Manning, its Managing Director, who will succeed him.

The majority control of Fidelity in Colt Telecom was maintained, including the introduction of 27 of the capital stock in London and at the end of 1996 New York Nasdaq. With the opening of the capital to the public, Edward c. Johnson III was at the same time the Pan-European independence of the alternative operator. Six main financing operations and successive (equity or debt) for a total of about 4 billion euros (see table p. 5). Fidelity and away candidates for an entry in the capital of Colt Telecom, AT & T and Deutsche Telekom, said to be at the time.

Colt to sell: info or intox

This has not prevented later rumours go good train on suitors to the redemption of the operator alternative, starting with those relayed by the British daily The Times that concluded in January 1999 on the interest of the cable operator NTL, ready to buy this "Nugget" of the telecoms for "EUR 4.9 billion". The Observer there went also the speculation in September 2001 referring to Cable & Wireless, British Telecom and NTT (8). The question on the intentions of the principal shareholder, Fidelity, have never even been raised since the leaders of Colt Telecom. If the heiress daughter decided to sell Colt Telecom, profitable is, it would have the choice! "The Johnson family has diversified its portfolio in telecoms". I don't know if they will sell tomorrow but I know that they are looking for value added in the long term. They do not look the results in the short term. "However, they may well shave one morning and sell", said Steve Akin, the current P - dg Colt Telecom Group, to the letter of telecommunications at a luncheon in Paris early March. The American, who entered the Fidelity Galaxy there is a little more than ten years (1992), was appointed President and CEO of the alternative operator pan-European in July 2002 instead of Peter Manning, which resigned in the wake of two other leaders of Colt Telecom after only eighteen months at the head of the operator.

Recovery in Executive hand by Fidelity

Even though, according to our information, "20 of the workforce of the Pan-European operator - particularly in middle-management - come from Fidelity", this arrival sounds like a debt and always deficit recovery operational control of the Johnson family on its "Nugget" which weakened, after three years of the telecoms crisis. Indeed, Steve Akin was previously head of Fidelity Capital, emerging business development branch of the investment firm, after having gained the confidence of the Johnson family as President of three entities of the Fidelity Galaxy where he joined in 1992 (9). This is the first time that the Johnson family is one of his men to the Executive Directorate of the Colt Telecom Group. Fidelity has also placed another man of the Seraglio (former Executive Vice-President "telecommunications" of Fidelity): Ken Starkey, appointed Chief Operations Officer (reached in July 2002 he also). Until then, Fidelity is met by the Presidency of the group.

Thus, the first to have occupied the post of Chairman was Jim Hynes, co-founder in 1992 of the "city of london telecommunications" with Paul Chisholm, for ten years at the service of Fidelity and its investments in telecoms. He was replaced in 1998 by the Vice-President of FMR Corp., James Curvey (entered in the Fidelity Galaxy in 1982), who was President of Colt Telecom until his retirement in December 2002 (but always present to the Board of Directors). It is Barry Bateman, the current Chairman of Colt Telecom and the current Vice-President of wire (Fidelity International Limited), who succeeded him. Barry Bateman, which came very early in Fidelity, as early as 1981, is an employee of FMR Corp., as are Timothy Hilton (non-Executive Director), Steve Akin and Ken Starkey.

Reduction of costs and staff

With Steve Akin, Fidelity has accelerated the process of reducing the costs and overhead. The use of cash (cash burn), which amounted in 2002 to more than 445 million euros, has been seriously reduced:-1 787! The workforce increased from 5,700 people two years ago to about 3 924 people today (10). There is more that one computer centre (data center) instead of the eight previously. COLT Telecom also shed end of the last two of its subsidiaries, apogee Communications and Asthéa Engineering (11). "Investment spending, that we monitor closely, should lie between 222 and 296 million euros this year," States Steve Akin. According to the financial information that P - dg of Colt Telecom forwarded them to the letter of telecommunications, the Group has spent since its first year in 1993 a "capex (12)" cumulative 4.1 billion euros (13), the year 2001 was the most wasteful (see table p. 4). The deployment of pan-European network infrastructure, which has absorbed the major part of these investments, is now almost complete in Europe with its 20,000 kms connecting 32 cities in 13 countries, including 15 000 km of network long distance (backbone that Colt Telecom calls EuroLan). Eleven Internet solution centres complement the Pan-European system. "We do expect however not open to other local loops in Europe but only access points in Warsaw, Budapest and Prague", says Steve Akin. COLT Telecom is moving towards 20 000 client companies in Europe and prides itself to see that 50 of these customers are located where its own infrastructure was deployed, also the Pan-European operator interconnection to other networks or ADSL. According to our information, the Colt Telecom Group claims 14 000 fully unbundled lines in Europe in March 2004, including 2,000 in France (see box p. 3).

"Speculative" Note, "stable" Outlook

Despite this, Colt Telecom is still classified by two financial rating agencies in the speculative notes (14). Moody's, which maintains its "B3", comes early March to change the perspective of this note long term (i.e. here two or three years) of "negative" to "stable". "This better perspective reflects improvements in the financial profile of Colt Telecom in 2003, including the significant growth of the fundamental Ebitda and cash flow from operating activities, and significant reductions in consumption of cash (cash burn)", said the Moody's agency to justify this recovery. For its part, Standard & Poor's is the note of the Pan-European operator to "B" - with a perspective which continues to be considered "stable" also. "The stable Outlook reflects the expectation of a reduction in investment since the completion of the core infrastructure of Colt, as well as measures taken to reduce costs, with reduction of cash burn and improvement of the profitability", says the Standard & Poor's Agency. The two ratings (Fitch Ratings agency note not Colt) highlight the fact that the telecom market faces weak demand, falling prices and visibility in the long term, involving Colt Telecom in difficult to grow in its current structure. "Substantial further capital expenditures (capital expenditure), while reduced significantly in 2003, will continue to generate a free cash flow negative to Colt until at least 2005", analysis Moody's (in March). "The operator will face in the coming years challenges and uncertainty is sufficiently increase its turnover and its cash flow to repay or refinance its debt, which becomes mature 2005", analysis for its Standard & Poor's part. The next year therefore presents itself to the Fidelity Telecom subsidiary as decisive in terms of profitability and debt reduction. It is mainly the year of the first big period of repayment of obligations due in August 2005, for an amount of EUR 292,8 million. Follow then to 2009 seven other deadlines for payments for a total of EUR 1.6 billion, the 2006 year paying the heaviest tribe to the debt.

Switch/non-switch: can do better

As the financial Council Morgan Stanley, it considers that the Colt actions "continue to be high risk" and that the performance of the title "remains potentially volatile": "We have long term to the cannibalization of existing revenues by voice over IP (VoIP) and migration of virtual private networks of enterprises (VPN), as well as the lack of mobile strategy", said the cabinet in an analysis of the March 11. The alternative operator must also face increased competition locally, as pressure analysis of Fitch Ratings from last November: "MAN (15) such as Colt operators continue to grow, although the historical operators become more effective competitors in this area." Some analysts are also at Colt Telecom that the joint between the turnover switched and non-switched, which is an indicator of potential gross margin, "deteriorated" (16). Colt Telecom switch/non-switch report has indeed reached painfully 60/40 in 2003, 61 to 39 the previous year. "I'd be grow more quickly", acknowledged Steve Akin. As the improvement of this indicator will have a direct and positive impact on the outcome of the Pan-European operator. In any event, the P - dg of Colt Telecom does not hide that "2004 will be a difficult year because the DSI (17) companies have learned how to reduce their costs." If Steve Akin moved early March in Paris (for the second time since his appointment), it is not only because the France is the third largest market in Europe behind the UK and the Germany (about 15 of the overall turnover for less than 500 people after reduction of staff) but also because of the "difficult" for the French market (see box p. 3). "On wholesale rates, we are disadvantaged." "We expect a stronger on the part of the ART control, even if the Portugal and the Ireland are even more difficult than the France", entrusted the Colt Telecom P - dg press luncheon. According to our information, Steve Akin took advantage of a reception in Paris, where 70 Colt Telecom clients made, to meet with the President of the ART, Paul Champsaur, and Clara Gaymard, President of the French Agency for international investments (AFII).

Steve Akin and Erkki Liikanen

Steve Akin observed all the more the France that he was appointed on January 29, President of the "CEO Advisory Council" of the ATTC (18), the European association on competition in telecommunications. This Council political and regulatory (policy board) is late March its first inaugural meeting in Monte Carlo, at the annual Conference of the ATTC (from 29 to 31 March). P - dg of Colt Telecom, his first mission in this European association was meeting March 5 - with four other CEO (19) - European Commissioner Erkki Liikanen to expose the concerns of operators alternative in their plans for investment in infrastructure telecoms in Europe. "Member States, which create loopholes and uncertainties in the new regulatory framework, will discourage investment", they warned. "In France, Germany and Netherlands, where the State is still present in the incumbent operator, legislative measures have been taken to limit the independence of the regulator", complain still (20). The representative of the powerful family of Johnson and the Fidelity Galaxy could allow this European lobby score points for a better transposition of directives and increased competition.