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Ericsson warns on 3G cost
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June 29, 2000: 6:21 a.m. ET
Shares slump after president warns that 3G costs will hit equipment makers
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LONDON (CNNfn) - Swedish telecom equipment maker Ericsson AB warned Thursday that the high cost of licenses to operate next-generation mobile-phone services could dampen profit growth in the sector and force equipment makers to take on additional risk.
The auction of five third-generation (3G) licenses in Britain last month for $35.5 billion forced the industry to reassess the cost of building networks as other European countries prepare to award their own franchises. The 3G system will allow companies to provide high-speed data transfer and Internet access through cellular phones.
Ericsson President Kurt Hellstroem said in an interview with Swedish newspaper Dagens Industri that while the high license costs would not frustrate expansion of the new services, "more creative solutions to financing" will have to be found.
"In principle I had the opinion that the auction of mobile licenses was quite sound, but the costs proved too high," said Hellstroem, adding that network operators would "certainly" seek to pass some of the higher-than-expected costs on to equipment manufacturers, while growth in the number of mobile-phone users could be crimped if operators set high charges to access them.
Ericsson officials stressed that the comments were not a profit warning, though the company's shares slumped 7.5 percent to 168.8 Swedish crowns in Stockholm. Nokia, the world-leading maker of mobile-phone handsets, fell 6 percent to  51.50 in Helsinki and French rival Alcatel (PSGE) was down 6 percent at 65.40 in Paris.
Ericsson has signed a deal to provide the infrastructure for Vodafone AirTouch's (VOD) new-generation services in Britain and is already building a 3G network in Finland. Vodafone paid almost $9 billion for its license after a six-week auction that raised about seven times as much in bids as the government initially estimated. 
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Ericsson
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