Ericsson Says Cellular License Costs May Curb Growth (Update1)
By Linda Andersson
Stockholm, June 29 (Bloomberg) -- Ericsson AB, the world's largest maker of wireless network equipment, said industry growth may slow because of the prices European phone companies must pay for permits to offer fast Internet browsing and video on mobile phones.
The license costs, which in the U.K. alone reached $35.5 billion, are also set to raise the financial risk taken on by phone companies and suppliers of the new networks, Ericsson President Kurt Hellstroem told newspaper Dagens Industri in an interview. The company's shares fell as much as 8 percent.
Ericsson and rivals such as Motorola Inc. and Nokia Oyj are vying for contracts to help Vodafone AirTouch Plc and other phone companies build the networks due next year. Investment may total as much as $200 billion, according to Motorola. To pay for the licenses and the equipment, phone companies may have to raise call rates, curbing demand.
``It's obvious that growth in the cellular market runs the risk of being damped as a consequence of the high charges,'' Hellstroem told the paper, adding that Ericsson will help clients fund the new networks. ``More creative solutions when it comes to financing will be demanded.''
Ericsson shares slumped as much as 14.5 kronor to 166 ($18.67) and Nokia fell 4.5 euros, or 8.2 percent, to 50.25.
Hellstroem's comments serve to highlight risks that may raise concern that phone-equipment makers' share prices are higher than is justified by earnings prospects, analysts said. Before today, Ericsson's stock had gained 32 percent this year, while Nokia had advanced 22 percent.
Phone-equipment makers are trading at an average 118 times 1999 earnings, compared with an average of 28 times for the companies in the Bloomberg European 500 Index.
``This is not a warning,'' said Mads Madsen, a spokesman for Hellstroem. ``We still have the same market forecasts.''
The Stockholm-based company, which gets more than two-thirds of its sales from wireless phone networks, expects 600 million people worldwide will connect to the Web via cell phones in 2004.
Ericsson, Nokia and Motorola have all said they will help customers finance the buildup of the new systems. One possible option is ``pay as you grow,'' where the phone company would pay the equipment supplier a portion of the income generated from using the network, Hellstroem said.
``The phone-equipment makers are being asked to give vendor finance,'' said Richard Lewis, who helps manage about $1 billion of European equities at Union WorldInvest.
In Europe, 14 countries are selling more than 60 so-called third-generation, or UMTS, licenses. In the U.K., an auction drove up the value of the five licenses on sale to $35.5 billion, 10 times what the government had expected.
``From the beginning I was of the opinion that auctions of mobile licenses were healthy, but the prices got too high,'' said Hellstroem in the DI interview.
quote.bloomberg.com
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It appears that costs for service for 3G systems will be much higher, mostly due to the license fees.
Jim |
