It once seemed that Europe’s telecommunications operators could do no wrong: emboldened by a general belief that they would reap outrageous benefits from the rise of the Internet and from even newer technologies such as the Wireless Application Protocol (WAP), their shares were star performers. But the bright future that seemed so assured a year ago has disintegrated into uncertainty. After leading the bull market up to the year 2000, the telecom sector is now leading the downturn, and day-to-day trading remains volatile. Many players are struggling to survive.

Blame for the industry’s change of fortune can be apportioned among various factors. Most incumbent operators, in their enthusiasm to capture a share of the telecom boom, amassed huge debts, largely from the scramble to stay ahead in the wireless arena. Over the past two years alone, companies spent $46 billion for third-generation (3G) mobile licenses in Germany and $36 billion for licenses in the United Kingdom. Meanwhile, new technologies such as WAP and UMTS (the Universal Mobile Telecommunications System) failed to take off. Finally, the gap between the best and the worst performers in the market widened across business lines, making it even more difficult for the laggards to...