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News > International
Germany's cellphone battle
July 31, 2000: 7:38 a.m. ET

Prices may undershoot estimates as tussle for new mobile licenses reopens
By Staff Writer Abid Ali
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LONDON (CNNfn) - Germany on Monday becomes the latest battle-ground for mobile phone companies to bid for third-generation mobile licenses, widely believed to be the holy grail of the mobile phone industry, in an auction that could raise a lot less than analysts predicted until recently.

Investment bank Bear Stearns expects the German sale of four to six Universal Mobile Telecommunications System licenses, which allow operators to offer fast internet access, video and data feeds via mobile phones, may only raise 28 billion ($26 billion) for state coffers rather than an initially expected 45 billion.

graphicThat's because the high prices paid for the five licenses auctioned in April have scared off some of the expected contenders. While as many as 13 companies had disclosed plans to bid for a license, the field had narrowed to only seven by Monday. Winning bids for the U.K. licenses were as high as £6 billion ($9 billion), raising a total of $35.5 billion for the government, many times the sum first expected.

WorldCom Inc. (WCOM: Research, Estimates) bruised and battered from recent spats with the European Union and U.S. regulators over its attempt to acquire Sprint Corp. (FON: Research, Estimates) withdrew from the auction. And U.K.-based cable operator NTL (NTLI: Research, Estimates) pulled out, blaming consolidation among its competitors.

Other companies that dropped out after previously showing an interest include French media conglomerate Vivendi, and Talkline, a venture owned by Tele Danmark A/S and SBC Communications Inc (SBC: Research, Estimates).

"Companies are looking for a European footprint, from Britain to Italy, and International players like WorldCom and Sprint wanted a piece of that," said John Tysoe, a telecoms analyst at WestLB Panmure. "Having not succeeded in the U.K. there is no point for them to continue elsewhere. They've lost the battle."

The Netherlands' recent auction of mobile licenses hasn't helped the German exchequer. The Dutch raised only 5.9 billion guilders ($733 million) selling five licenses, compared with the 20 billion guilders Dutch Finance Minister Gerrit Zalm had estimated in April.

graphicAnalysts only see five companies with the ability to achieve Europe-wide coverage, and all are in the running for a license in Germany, having each won third-generation licenses in the U.K., either directly or through partners.

Local market leader Deutsche Telekom AG (FDTE) heads the German challenge, joined by Britain's Vodafone AirTouch PLC (VOD), British Telecommunications PLC (BT-A), France Telecom SA (PFTE), and Holland's Royal KPN NV. The Dutch company this month formed a partnership with Hong Kong conglomerate Hutchison Whampoa and Japanese cellular market leader NTT DoCoMo to bid under the name E-Plus Hutchison.

In addition to these five, two outsiders are also entering bids. Group 3G combines Telefónica of Spain with Finland's Sonera, which dropped out of the auction for a British mobile license when prices got too steep. The other group is debitel, a unit of Swiss national telecom company Swisscom. 

graphicThe seven companies are bidding for between 4 and 6 licenses. The number of licenses awarded will depend on how much capacity the bidders want, with 12 blocks of radio frequency on offer - and buying more of the available frequency will enable a winning bidder to offer its users more advanced services. If they are to achieve their ambition of sending video and data over mobile phones they will need at the most three blocks each. It's essential E-Plus Hutchison, gain more than two bands, if as is planned Hutchison and KPN both run separate services.

Wireless network equipment maker Ericsson AB warned earlier this month that industry growth may slow because of the prices European phone companies must pay for 3G licenses.

The Stockholm-based company, Nokia and Motorola have all offered to help customers finance new mobile networks. One possible option is "pay as you grow," where the phone company would pay the equipment maker a percentage of their income from using the network.

graphicMost other governments have so far taken the "beauty-contest" approach to allocating mobile phone permits. That describes the system of selecting winners mainly on the basis of their ability to provide continuing depth and quality of service, rather than offer up the largest chunk of cash.

France plans to award four new-generation mobile licenses in November, using the beauty-contest approach. The government has already set the price of each license at 32.5 billion French francs ($4.6 billion).

In Europe, 14 countries are selling more than 60 licenses and the likely high costs of obtaining 3G wireless licenses in Europe could lead to "significant" rating pressure on the creditworthiness of some European telecommunication companies, according to Moody's Investors Service.

Nevertheless, WestLB's John Tysoe says it would be wrong to assume that telecom companies paying big prices for licenses have lost sight of the need to make a profit, even though license costs have spiraled far higher than analysts thought as recently as the start of 2000.

"You can make [3G] work," said Tysoe. "The pay-off comes in the later years, as has been the case with GSM," Europe's current continent-wide standard for mobile phone services. Back to top

  RELATED STORIES

Bidders back out of Dutch cell auction as rivals combine - Jul. 6, 2000

DoCoMo eyes UK mobiles? - Jul. 4, 2000

Germany gets 12 UMTS bids - May 2, 2000

  RELATED SITES

Vodafone

British Telecom

Hutchison Whampoa

NTT DoCoMo

KPN

France Telecom

Orange

Deutsche Telekom


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.