Subject: [NEXTEL-1] Motorola's Pyrrhic Victory?

From: [email-masked]
Date: Tue, 19 Aug 2003 02:31:02 -0400

Motorola's Pyrrhic Victory?
By Lidia Wasowicz
August 18, 2003

On July 31st, a New York district court awarded $4.26 billion in fraud
restitution to Motorola in a case against Turkey's third-largest mobile
operator, Telsim. CEO Hakan Uzan disparaged the case as a "travesty of good
business management," and claimed that the court had "only heard one side of
the story."

This big victory for Motorola was reaffirmed on Monday, when District Court
judge Jed Rakoff denied Telsim's request to stay execution of the judgment
pending appeal.

The judge agreed only to stay execution until Thursday. After that, the
Uzans must post a $1 billion bond to extend it.

The judge's verdict is heartening for the world's second-largest mobile
phone maker. Yet will it ever collect on the damages? And why is the case so
important to Motorola, anyway?

In 1995, Motorola entered the Turkish wireless market, which was perceived
to be on the verge of explosive growth. It soon found a partner in Telsim.

For 5 years, Motorola (together with Nokia) lent $2.8 billion in cash and
equipment to Telsim. The company's owners, the Uzan clan, are Turkey's
fourth-richest family with a net worth of at least $1.3 billion.

However, the loans haven't been repaid. Motorola claims that the Uzans
knowingly defrauded them, siphoning $1.8 billion by diverting Telsim's loans
and revenue. The Uzans, according to Motorola, never intended to make good
on the debt in the first place.

In January 2002, Motorola and partner Nokia filed a lawsuit in US District
Court in New York, charging that the delinquent Telsim had violated
anti-racketeering laws under the RICO (Racketeer-Influenced and Corrupt
Organizations) statute.

According to Canada's "National Post," Judge Rakoff damned the family as
guilty of having "...perpetrated a huge fraud. Under the guise of obtaining
financing for a Turkish telecommunications company, the Uzans have siphoned
more than a billion dollars of plaintiffs' money into their own pockets and
into the coffers of other entities they control."

The Uzans categorically denied the charges and are appealing the court's
decision. They have questioned the court's legitimacy, demanding that the
dispute be heard by a three-person arbitration panel in Switzerland- the
agreed formula for dispute resolution stipulated in the original contract.

On May 31, the "Washington Post" reported that Telsim was taking out
full-page newspaper ads, hiring New York PR firm Abernathy MacGregor Group,
in an attempt to discredit Motorola before its shareholders. The ads claimed
that Motorola concealed its loans to Telsim as sales, thereby artificially
inflating its revenues.

Embattled Telsim has other legal headaches. In June, the Italian-owned
IS-TIM Telekomunikasyon Hizmetleri was awarded 18 million euros by the
Turkish Competivity Board. The body ruled that Telsim (and fellow mobile
operator Turkcell) had violated competition law by not signing a roaming
agreement with IS-TIM. Turkcell has since said that it will appeal the
decision with the Turkish High Administrative Court.

The main problem for Telsim at home, however, is the simmering feud between
Prime Minister Recep Tayyip Erdogan and the Uzan family, which has seen
suits and counter-suits amid charges of slander.

Businessman-turned-politician Cem Uzan, whose right-wing "Youth Party"
challenged in November's elections, publicly questioned Mr. Erdogan's
Muslim-ness in June, after the government seized one of the Uzans'
utilities, leading to a slander site filed by the Prime Minister shortly
thereafter. Erdogan's ruling Justice and Development Party had also
appropriated one of the family's two banks and suspended five Uzan-owned
television stations for a month. Shades of Putin vs. the oligarchs, perhaps?

Motorola claimed that Uzan only wanted to enter the parliament to win
immunity from any future prosecution. Already, courts in Britain have frozen
family assets and ordered that any Uzan found on British soil be locked up.
An Uzan plane was also grounded in France, in compliance with Motorola's
wishes.

Ironically, through all the furor Motorola's original hunch in the Turkish
telecommunications sector has been abundantly proven.

According to Europemedia.net, the Turkish telecom market grew by almost 10
percent last year, to $7.6 billion. The mobile sector alone grew by 38.6
percent, hitting almost $3 billion. Although Turkcell has the largest
subscriber base (16.3 million), the state-owned Turk Telecom is larger, and
Telsim currently third. Turkish newspapers have issued conflicting reports
in recent weeks alleging that Telsim is being transferred to Nokia, Motorola
or Vodafone.

But will Motorola actually collect the $4.26 billion- and will the whole
experience have proven worthwhile in the end?

Motorola has been seeking broader restitution -- or, as Hakim Uzan called
it, fulfilling a "perverse satisfaction" -- by filing suits across the world
in an attempt to freeze Uzan family assets. Yet this arduous and
time-consuming task has already cost Motorola shareholders hundreds of
millions of dollars. And there's no guarantee that the $4.26 billion will be
paid anytime soon, considering the appeals process and the foreign
provenance of Telsim.

Further, as the Telsim ad campaign smugly noted, Motorola is facing 19
shareholder lawsuits regarding the loan disclosure. The "Washington Post,"
noted of a Motorola's shareholder meeting in May, "angry investors
criticized the company's poor stock performance and the $1.5 million bonus
recently awarded to chief executive Christopher B. Galvin."

Considering all the acrimony of the last two years, Motorola must get the
moral victory -- and keep the shareholders quiet. Yet the case matters to
Motorola largely because it is in trouble.

On Monday, Bloomberg reported a sales decline of about 10 percent, to $6.16
billion, and a likely fall in sales and profit again this quarter.

Caroline Gabriel, on the British tech site theinquirer.net, recently
questioned Motorola's imminent partnership with Microsoft on a new Windows
mobile phone:

"...Motorola has, for the first time in its history, fallen out of the top
10 global chipmakers, has lost its sure footing in handsets and is seeing
its domination of the set-top box market threatened. It needs friends, and
bringing out a Windows handset may be a small price to pay."

Even worse, a steadily gaining Samsung is now teaming up with Nokia to
develop software and their shared Symbian platform. Nokia, the world's
leading maker of mobile phones, is also hitting Motorola at home. Although
the Finnish company hasn't yet gained the market visibility in America that
it has long had in Europe, it's now making inroads.

And Nokia is also pushing Motorola in another key market -- China. To add
insult to injury, on Monday the company lost Tim Chen, the president of
subsidiary Motorola China Electronics Ltd. (MCEL). Chen defected to
Microsoft's China operation.

Indeed, as Gabriel notes, "...Microsoft has done what it is really good
at -- hung around until it gets a major but wounded player to give in to its
courting, then poise itself to take the helm. Perhaps it's not so ridiculous
to suggest that Microsoft should just buy up Motorola and go after Nokia in
earnest."

Today, the Uzans remained defiant. According to "Zaman" of Turkey, the
family is negotiating a $675 million Nokia debt in Switzerland, a process
which Hakim Uzan said will last 9 months. The patriarch again lashed out at
Motorola, charging, "...this is a deliberate and planned political campaign.
However, as long as you are right before the law you can handle it -- and we
believe in this."

http://wirelessnewsfactor.com/perl/story/22111.html

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