mmO 2

mmO2's bonds have performed poorly and the issue now is how vulnerable the spreads are to further underperformance. The extent to which wireless sector revenues pick up or continue to languish is clearly the determiner. Vodafone has focused attention on the slowdown in the German market in a recent release, a market that might prove even more problematic than expected. mmO2 is the most operationally geared of all the wireless operators; is its business plan likely to succeed and what are the prospects of further downgrades?

Tim Jagger
Royal Bank of Scotland

Buy
The problems at WorldCom have led to increased investor caution towards telecom companies, particularly those perceived to have weak market positions and/or ambitious strategies. This has impacted both the equity and bond prices of mmO₂ given its current weak market position in Germany and its ambitious business plan that seeks to quadruple Ebitda from £400m to £1.5bn in three years. We believe the recent spread widening is overdone and recommend