Here is a letter I sent to the chairman of an independent advisory unit of UK's RA (Radiocommunications Agency). This entity reports to DTI (Dept of Trade and Industry). There has been no reply in over two weeks. JB
Dear Dr. Forrest,
I am retired and a private investor, specializing in the telecommunications area. The consequences of the U.K. 3G Mobile auction have become much more far reaching than expected. I am trying to figure out what started the ball rolling. It appears that you are in the unique position as an independent strategic advisor to help me.
The FAQ is a most informative document, and I certainly agree with the answers to THE AUCTION section, including the stated intent to limit the number of licenses. The media has said that the auction was expected to yield some five million pounds. Presumably that view reflected industry sources, in turn based on some economic models. What forces stimulated the bidding to cause the huge gap between expectation and reality, leading to a domino effect across Europe and are already exacerbating the trend toward higher interest rates?
Certainly the government didn't set out on a course designed to impose what amounts to a twenty-three million pound tax burden on the consumer, and certainly neither the consumer nor the operators had reason to seek this result. Please correct me if I am wrong, but it would appear that the only other winners who might have been able to influence the outcome are the banks and the equipment suppliers.
The banks look set to underwrite at least two hundred billion pounds of bonds and shares before the dust settles, for a win of fifteen to twenty billions. Maybe they are also among the short-sale winners as telecomm shares have suffered the results of the auctions. Were they in a position to advise the auction route in the first place?? At least we can hope that a good portion of the U.K. fees should stay in the U.K.
The equipment suppliers are the other big winners. The mania effect forces operators to rush headlong into massive orders for infrastructure so that they may more quickly try to get some sort of return on investment, even as their debt service costs skyrocket. Demand is guaranteed to far exceed supplies for several years, yielding far juicier margins than in an orderly, competitive market. This money will flow out of U.K. to France, U.S., Finland and especially to Sweden.
This week Sweden announced that it was not going to employ the auction route. Also this week, Ericcson announced a grant of scholarships to the University of California San Diego to enhance knowledge of CDMA as the wave of the 3G future. Did Ericsson encourage U.K.operators to overbid, in anticipation of the chain of events that has occurred?
Ericcson hooked up with Vodofone immediately after the auction, to help Vodofone get on with 3G. Yet Ericsson must be a key advisor to the anti-auction decision in Sweden. Thus, the Swedes avoid the burdens of a domestic auction while enjoying fat profits as a direct result of the U.K. and other auctions.
Vodofone was the co-participant with Qualcomm in the Newbury trial of a CDMA One overlay of GSM. That ended in 1998 proving that the simplest version of CDMA could be used as the most economical way for GSM carriers to begin the transition to 3G. Ericsson (and Nokia, etc.) fought those results as European standards were being established, before ending up buying the CDMA infrastructure division from Qualcomm in 1999 when they lost a battle of GSM vs.CDMA on the courthouse steps.
Earlier this year, well before the auction, Qualcomm told the world that they had developed a high data rate (HDR) technology that might well obviate the need for any GSM-based 3G. CDMA One, plus HDR, would at least give business and consumers a very low cost way to achieve data transmission goals for some years. Why was this avoided like the plague by Vodofone, Ericsson and governments as they charged ahead to create what may well be a great fiasco? Finally, was the RA aware of the conflicting interests which appear to have influenced the outcome and consequences of the 3G auction?
Thanks in advance for any insight you may be able to provide.
Cordially,
Jack Bridges |
