German UMTS Costs to Dive As Bidders Pull Out
By Paul Carrel
FRANKFURT (Reuters) - An auction for third-generation mobile phone licenses in Germany, Europe's biggest telecommunications market, could raise 50 percent less than initially feared by the industry as a growing band of bidders pull out.
An initial list of 12 UMTS bidders has been whittled down to eight as entrants, some of them reeling from the high prices UMTS licenses fetched in a British auction, balk at the prospect of paying billions of euros and getting no return for years.
Bear Stearns says the German sale of four to six high speed UMTS (Universal Mobile Telecommunications System) licenses this month may raise just 28 billion euros ($27 billion) for state coffers -- rather than an initially expected 45 billion.
Speculation is mounting that the list of bidders could soon narrow to seven after industry sources told Reuters that Dutch carrier KPN Telecom, its Japanese partner NTT DoCoMo and Hong Kong's Hutchison Whampoa are likely to announce a European mobile phone joint venture next week.
That could result in E-Plus, the KPN-backed German UMTS license bidder, joining forces with Hutchison-backed Auditorium Investments in the auction -- leaving only a core of established domestic operators to dominate the bidding.
Hutchison was the most aggressive bidder in the British auction in April, which beat forecasts by over seven times when it raised 22.5 billion pounds ($34 billion), triggering fears the industry may face a 170-billion euros bill for UMTS licenses across Europe.
As Demand Falls, So Does Projected Licence Cost
With supply fixed and demand falling, analysts say the envisaged cost of the licenses is lower than the average of around 10 billion euros expected one month ago.
``The total for the German government will now probably be about 60-70 billion marks ($29-34 billion) instead of 100-120 billion marks because some companies have withdrawn. And I think others will also withdraw,'' said Theo Kitz, analyst at Merck Finck & Co in Munich.
The auction is due to start on July 31 for licenses which will allow winning bidders to upgrade networks and offer a range of new high tech services including video and fast Internet services via cellphones by 2002. Hopes that UMTS cost estimates have been overly pessimistic could propel telecommunications stocks -- especially so-called ''pure play'' cellphone firms such as Vodafone AirTouch Plc -- higher.
Despite a rally last month, telecom shares remain around 30 percent below their March levels when a global sell-off was triggered partly by the high prices fetched in Britain, Europe's first UMTS auction.
Lehman Brothers said on Friday that lower fees could raise KPN's share price by at least nine percent and lift those of Vodafone, BT and Deutsche Telekom by two to four percent. ''With a more favorable outcome to the important Dutch and Germany UMTS processes now seeming likely, we would be buying KPN and the pure play mobile stocks aggressively at these depressed levels,'' the broker said in a research note.
Netherlands Initial Umts Bids Less Than Expected
The experience of the Netherlands' UMTS auction has shown operators are not prepared to allow the British auction experience to repeat itself.
In April, operators still had hopes of building pan-European networks and had everything to play for.
But only five real underlying contenders now remain in the Dutch auction, analysts say: Vodafone, Hutchison with KPN and DoCoMo, France Telecom with Orange, Deutsche Telekom and BT.
Bids on the first day of the Dutch UMTS auction were less than a quarter of the opening prices set by the government.
Unlike the British UMTS bid, which went on for several weeks, the German auction is likely to be over in a matter of days with rivals bidding in several 40-minute rounds each day.
German market leaders Mannesmann Mobilfunk, a unit of UK-based Vodafone, and Deutsche Telekom T-Mobil division are widely regarded as leading contenders to win licenses.
France Telecom-backed MobilCom, E-Plus and BT-backed Viag Interkom are regarded as the other front runners. Auditorium, Swisscom-backed Debitel and Group 3G -- comprising Telefonica and Sonera -- complete the field.
But some see the writing on the wall for the last three, which would need to start from scratch in Germany and face the heavy costs of building new networks.
``Debitel, Group 3G and Auditorium will drop out soon, I think,'' said Merck Finck's Kitz.
Contenders will bid for 12 individual blocks of 2 x 5 MHz paired (or 2 x 10 MHz). To qualify for a license, an operator will need two blocks (2 x 10 MHz), but may bid for a maximum package of 3 x 10 MHz. Analysts widely expect at least two operators to go for three blocks, meaning that only four or five licenses would be allocated |
