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Pastimes : Home on the range where the buffalo roam

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To: Boplicity who wrote (10471)	2/20/2001 11:27:55 AM
From: slacker711	Read Replies (1) of 13572

3. The Cellular sector has reached nirvana and has bet on something that is too costly and will come too late to revive it. I've been following the recent discussion over the state of the world telecom industry with interest....just want to comment on the sector I know best, wireless. Over the last couple of months it seems to have become gospel that the wireless operators overspent for the 3G spectrum in the UK, Germany and Italy. The recent statement by BT's CEO that they overspent on 3G spectrum by $10B has added fuel to the fire. However, it is always interesting to look at the numbers underlying these arguments..... British Telecom spent $5.77 Billion on the UK spectrum auction. This gave them the right to the spectrum (I think it was 2 10MHz blocks...) for twenty years starting on Jan. 1st 2002. BT currently has 10.244m customers on their nationwide GSM network. If we take the conservative assumption that any incremental penetration over the next twenty years would go to the new operator on the UK market (this is obviously very conservative)....the spectrum works out to a cost of $2.40 per month per current BT customer. However this calculation neglects the cost of the 3G infrastructure build-out. I believe that the original projections were for around $5B (though these numbers have come down). This would add another $2.08 to the monthly bill. Obviously, the above calculations are simplistic....particuarly since they avoid the issue of interest on the accumulated debt. However, for a ball-park figure of around $5/per customer/per month, it seems to me that BT and the other wireless providers should be able to provide services which more than pay for the actual cost of the spectrum. Thus far, a wireless connection has proven to be one of the things that consumers are more than willing to pay for (witness PCS's $60 ARPU on voice services alone). JMO....but the advent of data services to supplement the current voice services is likely to drive average revenue per user well in excess of $5/month. Another thing I have noticed, over the last six months or so, are more frequent references to the fact that spectrum in current GSM bands is beginning to run out in Europe. These types of statements were nowhere to be found a year ago. A spectrum shortage in current frequency bands would only emphasize the advantage that the companies with 3G spectrum will have over 2G incumbents. Slacker

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