The jaws of a trap are closing on Europe’s telecom companies. Credit rating agencies and debt providers will punish them unless they reduce the huge debts they took on to build in new markets. The telecom companies have promised to do this by floating subsidiaries and selling assets. But the very equity investors that encouraged them to leverage up and go for growth won’t buy these now. The banks won’t lend either and more downgrades are likely. The scales have fallen from debt and equity investors’ eyes. Where once stood, solid, dependable, utility-like incumbents, they now see risky, new-economy companies that have bet heavily on unproven technology and have limited access to the funding needed to make it pay. The telecom companies may have to take drastic action in order to survive.

Time is running out for Europe's telecom companies. Investors don't believe they can meet debt-reduction targets, nor do research analysts or the rating agencies, which are threatening further downgrades. Even the companies' own management teams are starting to have doubts about the tenability of widely publicized restructuring plans, admitting that perhaps they've been a little optimistic.
During the past year, telecom companies have slid a long, long way into the red. Between them, the main incumbents - the former state-owned companies - have run up a bill of e150 billion ($137 billion) bidding for universal mobile telecommunications system (UMTS) licences. They've also been having "fun and games on the side", in the words of one analyst, acquiring competitors and buying stakes in others.

But now the fun has stopped as the telecom companies have started to realize exactly what they've got themselves into. Before they see a single euro of return on their...