|Author (Person)||Jones, Tim|
|Series Title||European Voice|
|Series Details||Vol.7, No.7, 22.2.01, p21|
A YEAR ago, auctions of third-generation mobile phone licences were all the rage.
When the UK authorities planned a sell-off of five licences with the aim of raking in € 4 billion and ended up scoring 35 billion euro, EU finance ministers were queuing round the block to get appointments with the games theorists who designed it.
Germany's Hans Eichel got in first, racking up € 51 billion for six licences. In all, 75 licences to operate Universal Mobile Telecommunication System (UMTS) networks have gone up for sale in Europe between 1999 and 2001, compared with the five years it took to assign the 60 existing licences for plain-old mobile voice telephony.
Today, as auctions come unraveled everywhere from Switzerland to Belgium, France's alternative set-price 'beauty contest' fares little better and France Télécom's Orange raises a fraction of its target funds in a pitiful public offering, EU regulators are finally considering action to tame the process.
"The [European] Commission has been happy to consider action, especially since the failure in France, and now I hope we can start a debate within the Council [of Ministers] on how to allocate frequencies," says Dutch MEP Wim van Velzen, the senior Christian Democrat on the European Parliament's industry committee.
He has inserted an amendment to Article 13 of the draft directive on the authorisation of electronic communications networks and services - a key plank of the EU executive's telecoms package demanded in time for the Stockholm economic reform summit at the end of March.
The amendment, which has won the committee's support and the backing of the Union's Swedish presidency, would allow the Commission to publish "on a regular basis...benchmark studies with regard to best practices of allocation of radio frequencies" and "non-discriminatory, transparent, objectively justified and proportionate" fees for spectrum "to take into particular account the need to foster the development of innovative services and competition".
The underlying argument is that the phenomenal costs of the new networks will stifle innovation.
Mobile-phone operators convinced their investors that they couldn't afford not to have a licence to use scarce radio spectrum to build and operate third-generation networks. To be left out of '3G' was to be left out in the cold once mini-handsets with text-messaging facilities were replaced by all-singing, all-dancing mobiles boasting multimedia services and full Internet access.
As they piled up debt paying upfront deposits for their licences and the German and British governments paid off theirs, the companies' stock prices continued to soar. By last spring, telecoms stocks represented 15% of all the continent's equity.
What a difference a year makes. As US stock prices collapsed, the realisation dawned on previously generous investors that the returns from 3G networks would be a long time coming - if at all. Investment bankers Schroder Salomon Smith Barney calculate that total 3G-licence costs in western Europe will top 150 billion euro, with the same amount again for building the networks.
The German auction, where licences went for an average 8.5 billion euro, was the high-water mark of the 3G bubble. Italy's sale stalled in October after the Blu Consortium withdrew on auction-eve, leaving five bidders for five licences each at the € 2.4-billion asking price. The Netherlands rued its hesitation in pre-empting the British auction and got 2.6 billion euro.
Since then, the roll call of auctions has been farcical.
The Swiss had to put up with licensing precious radio spectrum to Swisscom, Orange, Telefonica de España and Danish operator dSpeed for the giveaway price of € 33 million apiece compared with the € 5-billion jackpot Bern had pencilled-in.
The Belgian auction was due to take place on 7 March and raise 1.5 billion euro, but it foundered after the only competitor - a combined Telefonica and Suez Lyonnaise des Eaux bid - withdrew. That left just the incumbent operators in the running and the Belgian treasury can now count on making a disappointing 450 million euro.
Big names such as Orange, British Telecommunications, T-Mobil and Vodafone are now saddled with crippling debt. BT Chairman Peter Bonfield admitted last weekend that his company had paid € 16 billion "that we should not have had to pay" for 3G licences and is now looking to demerge its mobiles business.
France Télécom, which believed it had outwitted the British auctioneers by withdrawing only to buy successful licensee Orange then refloat it, has come undone. Lost institutional appetite for mobile-phone stock meant that last week's partial refloat was a disaster, forcing the company to scale back revenues from € 70 billion to 55 billion euro. Even then, investors left with Orange stock by the end of the first week have seen a loss.
France Télécom is seeking to recoup some of its 3G outlay once the aborted French spectrum beauty contest is rerun. Instead of putting the licences to auction, the French government set a take-it-or-leave-it fee of € 5 billion for operators irrespective of their size, cash pile or customer profile.
Suez Lyonnaise des Eaux and Telefonica felt the price was excessive and withdrew from the contest in January. They were followed last week by Bouygues Telecom, which has also filed a complaint with Competition Commissioner Mario Monti against alleged use of illegal state aid in the allocation of licences.
In a written answer to Finnish Green MEP Esko Seppänen, Monti says he is conducting an "in-depth analysis case by case" into these allegations and similar claims about the Dutch auction from Versatel. "In principle, the two procedures for selling licences - beauty contests and auctions - conform to state-aid rules, as long as they are transparent, objective and non-discriminatory."
The basis of the Bouygues complaint is that a flat-rate fee favoured big, specialist incumbents such as France Télécom and SFR over companies with a smaller customer base. "If you push that reasoning, then you have to start looking at all sorts of areas in tax policy," says Dirk Van Liedekerke, head of the Brussels practice of Olswang, a law firm specialising in telecoms and media. He cited similar, unsuccessful complaints made by low-cost airlines such as easyJet and Ryanair about flat-rate airport taxes.
However, if competition officials can find any evidence of collusion between operators to avoid paying the full cost of licences, firms could face fines of up to 10% of their worldwide sales. The Dutch authorities investigated alleged collusion between Versatel and BT's Telfort; the Germans inquired into a suggestion from Debitel that it might cooperate with France Télécom's MobilCom after the auction; and the Italians questioned Blu's last-minute withdrawal.
Any evidence of collusion would not only be costly but would further undermine the whole auction ideal launched with such fanfare last spring.
|Subject Categories||Business and Industry|