Slightly OT, but interesting nonetheless. From TheStreet.Com:
France's Beauty Contest for Mobile Licenses Will Likely Favor Locals
By Marc Young
German Correspondent
6/8/00 12:00 PM ET
BERLIN -- France may be renowned for its wine, but the country's telecommunications companies may soon be known for their proclivity to whine.
As soon as the government in Paris announced this week how it would allot its third-generation mobile-phone licenses, which will bring a host of new high-speed Internet and multimedia applications to cell phone users, the nation's top two wireless operators France Telecom (FTE:NYSE ADR - news - boards) and Vivendi-owned (VVDIY:Nasdaq ADR - news - boards) Cegetel began to moan about the expense.
Instead of opting for a potentially lucrative auction of its four universal mobile telecommunication system, or UMTS, licenses like the U.K. and Germany did, France has decided to hold a "beauty contest," in which it will pick the operators it deems fittest, plus charge a flat 32.5 billion franc ($4.7 billion) fee per license. While that means the licenses will only bring the French government $18.8 billion compared with the $35 billion the British auction netted or the more than $50 billion expected in Germany, the French telcos are still bitterly complaining.
However, France Telecom and Vivendi doth protest too much.
By forgoing a straight auction where the UMTS licenses would go to the highest bidders, France's beauty contest will likely work to the detriment of foreign rivals such as Deutsche Telekom (DT:NYSE ADR - news - boards) and Telefonica (TEF:NYSE ADR - news - boards). Currently awash in cash, Deutsche Telekom may go home empty-handed, as industry observers figure the government will favor local players.
The French government justified its decision for the increased entrance fee by claiming that to sell the licenses for less would be tantamount to offering public assets at bargain prices. France's telecom regulator will determine the necessary criteria for a bid by late June and companies will be able to place their offers toward the end of the year.
Some analysts thought a straight auction was always out of the question, as the French government might think it was taking money from itself, since it still owns 54% of France Telecom.
"That stake means they probably wouldn't want to do anything that would put France Telecom at too big a disadvantage," says an analyst for a major French bank that has ties to France Telecom. Although France Telecom will now have to pony up the entrance fee, it probably has a lock on one of the four licenses.
So where does that leave the foreign hopefuls?
Unfortunately for Deutsche Telekom, its brimming corporate coffers are unlikely to carry much currency with French bureaucrats and that certainly doesn't sit well with CEO Ron Sommer. He reportedly criticized France's decision to go for the beauty contest Wednesday, claiming that only bidding was transparent enough to avoid local favoritism.
"It's possible the foreigners could be discriminated against, especially if [the French] happen to decide they don't like the Germans," says Robert Halver, an equity strategist for Delbrueck Asset Management in Frankfurt, half kidding.
Halver thinks Deutsche Telekom doesn't have too much to worry about, however, as the company already has a U.K. UMTS license and will more likely than not obtain licenses in Germany and Italy. Deutsche Telekom could choose to acquire or partner up with companies in countries where it doesn't have its own license.
"It should definitely encourage M&A action in the sector, since there won't be enough licenses to go around for everybody," Halver believes.
The fallout from the pursuit for UMTS licenses is already being felt, and not only in the telecom industry. On Wednesday, Vivendi announced it intends to reduce its 24.5% stake in Rupert Murdoch's U.K. pay-TV channel British Sky Broadcasting (BSY:NYSE ADR - news - boards) in order to help pay for a license. This put further pressure on BSkyB's share price, which has fallen more than 20% this week.
One possibility for Deutsche Telekom could be to team up with the likes of Bouygues Telecom (BWG:NYSE ADR - news - boards), France's number-three wireless operator. The cash-strapped Bouygues was considered one of the biggest opponents to a French auction and may still have difficulty coughing up the higher beauty contest fee.
Perhaps with Bouygues' local credentials and Deutsche Telekom's deep pockets, Sommer could end up being pretty enough to win Paris' beauty contest after all.
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