Efforts to reduce debt, a priority for European telecommunications operators since the end of 2000, are beginning to bear fruit, except at the two giants France Telecom and Deutsche Telekom. "Many issuers of sector-related bonds have condemned the enormous debt burden on operators, an inheritance from foolish acquisitions during liberalisation and the extravagant price of third generation licences", according to Peter Kernan, an analyst with Standard and Poor's. The latest illustration of the turnaround is the Dutch operator KPN. On the verge of bankruptcy a year ago, the group announced its first profits for a year on November 15 and reported that it has succeeded in cutting debt more quickly than anticipated. If it achieves its debt target of Euro 13 billion by the end of 2002, KPN will have cut debt by 44% in the space of just a year and a half (Euro 23.2 billion at the end of 2001).

A recent study by Societe Generale analysts suggests that "the widespread opinion among investors that the majority of historic operators have a serious debt problem has ceased to stand since in the majority of cases the ration of net debt to gross operating profits is below 3, which we regard as an acceptable level". The about turn in strategy is a result of the bursting of the technological bubble and the greater attention by investors to financial stability, as reflected by the impact on stock market values of changes in financial ratings. The recipe is the same at the principal operators: and end to a policy of expansion, a reduction in investment spending and an improvement in margins...

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