2HRS2GO: In praise of ad restrictions on stocks

No matter where you go, you can't escape it these days.

A good vacation will always create indelible images in your mind, and Italy certainly did that for me over the last couple of weeks. But besides impressions of lovely mountain vistas and spectacular ruins -- incidentally, seeing Michelangelo's David in the flesh (so to speak) has ruined me when it comes to viewing art; nothing else compares -- Italy in my mind will always be associated with one word, usually delivered in a sing-song tone: "Pronto!"

That's how Italians usually answer the phone. And whether you're sitting in a lively Roman piazza, strolling along the tranquil shores of Lake Como or risking your life in the daily NASCAR races that pass for driving in scruffy ol' Naples, you will hear "Pronto" at least every 2 minutes, usually coming after the digital music bits that often represent rings on European wireless phones. If you're not hearing it, you're probably reading about it; round the corner from the Colosseum you can run into flurries of advertisements extolling the virtues of Wireless Access Protocol devices. Get WAP -- pronto!

Europe's love of wireless is understandable, given the state of most countries' wireline systems -- just try finding a reliable tone-dial phone in Italy. Which makes it amazing that traditional telecom powers can still raise money from public markets. It becomes even more amazing when you consider how much money: $14.4 billion, in the case of Deutsche Telekom (NYSE: DT), which 11 days ago held its third stock offering in four years.

That's more than $14 billion for a company that could be the poster boy for the Communications Dinosaur Society. Granted, DT is trying to grab onto the future, not only with its T-Mobil subsidiary (which could go public as early as October), but also with an ongoing pursuit of a Big Acquisition. But Deutsche Telekom, like any traditional communications monopoly, certainly isn't the kind of company you'd point to as a cutting edge organization.

Yet DT pulled off the unprecedented feat of not selling that so many billions in stock, but doing it in 18 countries simultaneously. You'd think this was some kind of global giant, as opposed to a firm mainly focused on one economy, albeit the most significant one in Europe.

Credit the power of advertising.

It's hard to believe that we have more stringent securities regulation in the United States -- the country generally held up as the standard bearer of free-wheeling markets -- than in semi-socialized Europe, but we do. At least in some areas.

U.S. investors take it for granted that stocks are subject to a ban on any commercial advertising of share sales. Companies obviously find other ways to promote their stock offerings, not only through the road show visits with fund managers, but also through flurries of press releases and even old-fashioned media ads to plant the brand name without mentioning the stock specifically.

Yet the main source of stock information for U.S. investors comes from the formal filings, with their disclosure requirements for risks, finances and legal issues. The advertising restriction is a good way to encourage people to read the hard data.

Most of the world doesn't see it that way. A Wall Street Journal article -- I yielded to a moment of weakness while on vacation and bought a WSJ Europe edition one morning in Florence -- pointed out one of the main problems faced by Deutsche Telekom was reconciling different countries' advertising rules. But at least they could advertise their shares.

It was especially important in DT's case, the Journal noted, because the company was counting on individual investors to carry the bulk of the business. That's quite the opposite from U.S. companies, which generally prefer as much institutional ownership as possible.

Unfortunately for DT, many European money managers are leery of a company largely characterized by single digit profit growth and, so far, an inability to close a large deal despite having one of the fattest wallets in the world. For all of the reports about DT's attempts to buy Qwest Communications (Nasdaq: QWST), Mannesmann SA, a U.S. Baby Bell, or Sprint (NYSE: FON), so far everything has remained just that -- attempts that were lost to more nimble competitors like Vodafone Airtouch (NYSE: VOD). It's not an encouraging sign for someone looking for company in the increasingly aggressive and cut-throat communcations business.

DT -- and anyone else selling stock in most countries -- could sidestep such concerns by taking its case directly to individuals through advertising. You can't blame a company for doing that -- after all, you have to do whatever you can to put your best foot forward, as long as it's legal. And it keeps going: Deutsche Telekom this week raised another $14 billion through the largest bond offering ever.

Imagine if Internet companies in the United States had that kind of media leverage available for their stock offerings. Bad enough that so many Web stocks flew so high on nothing -- can you imagine what kind of heights theglobe.com (Nasdaq: TGLO) might have reached if it could have advertised its IPO? Or if even a relatively stronger company like Amazon.com (Nasdaq: AMZN) had the ability to advertise its shares every time it needed to raise money?

Now that could be a valuation nightmare. Fortunately, the U.S. system puts the kibosh at least on the most overt of ads. As for the press releases and all the rest -- individuals can shoulder their own responsibility to filter the remainder for themselves. 22GO>