I still think that the debt issue may not be too much of a problem, for a couple of reasons:
1. Carriers/service providers, wireless or otherwise, have been funding multi-billion dollar network upgrades like this for years. A number of optical network owners, such as Level 3 and Global Crossing, are doing just this in order to meet up with all the demand that they're facing. AT&T's done a huge debt offering in order to pay for cable upgrades. As long as these companies can explain how the money they're spending will fuel future growth, they tend not to have a problem.
2. They've been through this exact situation before, during the upgrade from analog to digital. On a relative basis, this was a far more costly upgrade cycle, as it involved scrapping all existing equipment for new equipment, not just some of it (the PDC operators are the exception to the rule here, of course).
3. Debt isn't the only solution. These companies can also do stock offerings, as some of them are. AT&T Wireless did an IPO recently, and Verizon and Orange set to go public fairly soon. Vodaphone, meanwhile, sold Orange to France Telecom, and got paid partly in cash. I think that some of the faster-growing operators might be able to get away with secondary stock offerings instead of debt. Sure, this will dilute their earnings, but it won't stop the rollout.
4. The auction hysteria's died down tremendously. The Dutch auctions, and what's going on in Germany right now, is a testament to this fact. I'll be really surprised if the FCC actually gets $70 billion for the US auctions, especially considering that a number of carriers still have a lot of excess capacity, and since, given the genius of US spectrum allocations in the past, these guys still have to negotiate with broadcast TV companies that own the rights to these bands. Also keep in mind that some countries are still taking a "beauty pageant" approach to the auctions.
5. All of this stuff (debt, auction fees) doesn't have to be paid for at one specific point in the future. The carriers can take their time in generating the cash flows needed. And as I stated in my last post on this subject, the voice-related cost savings for W-CDMA could be tremendous.
I still think that the main problem that could hold back 3G rollouts is the ability of the carriers to justify to themselves the costs of the rollouts, regardless of the interest they pay on any debt that they acquire. I think that the cooling of the UMTS spectrum market isn't merely the result of sanity kicking in, but also the product of uncertainty regarding the potential of wireless data. Still, I haven't seen anyone publicly state that they'll be postponing their 3G rollouts for any significant period of time, so all seems to be going well, at least for now.
Eric |
