EC urges state policies for 3G license debt relief
Michelle Donegan
19 March 2001
Europe is standing by the lifeboats for the mobile industry as the European Commission and
operators urge action from member state governments to review third generation (3G)
licensing conditions. The Commission will this week release a report on 3G mobile
communications that encourages member states and industry representatives to "consider
taking appropriate corrective measures" in order to restore confidence in 3G.
In the face of a growing crisis in financial markets, major industry leaders, including BT
chairman Sir Iain Vallance and chief executive Sir Peter Bonfield, as well as Vodafone chief
executive Chris Gent, are understood to have visited United Kingdom ministers and the
Commission, seeking relief from multi-billion euro 3G license fees and deployment
conditions.
Although some commentators believe the situation may lead to government intervention to
sustain the nascent industry, the government cannot directly fund any operator because it
would be considered state aid, which would go against EU policy.
"There will never be direct funding," said Don Jayasuriya, director of London-based DJ
Consulting Services Ltd., which advised the Radiocommunications Agency on the U.K.'s 3G
licensing plan. "It would be construed as unfair and uncompetitive," said Jayasuriya. "Funding
companies has always been a difficult issue."
But it is possible for a government to fund a company indirectly, according to Mark Naftel,
partner at London law firm Norton Rose. "There could be an indirect subsidy of BT," said
Naftel. "BT might ask for a government bail out, but the government would say (the bail out)
was for promoting broadband."
There are other ways governments can facilitate the introduction of 3G, said Jayasuriya.
Governments can stimulate the market by encouraging Internet use, or by finding ways - for
example regional grants - to assist companies that will be manufacturing infrastructure and
handsets.
Another key policy issue in 3G licensing conditions, which could alleviate the financial burden
of mobile operators, is secondary trading of spectrum.
Currently, it is not possible for spectrum owners to resell any part of the spectrum they have
been granted by licenses. "If secondary trading becomes possible, that would take some
burden off
these companies," said DJ Consulting's Jayasuriya. "If governments could do anything at all,
they could consider legislating secondary trading."
The mounting debt carried by many European operators has caused some to consider the
possibility of spectrum owners returning their licenses. But legal experts in the U.K. say that
even if 3G spectrum winners wanted to return their licenses, the money would not be returned
by the government. "I would be surprised if there is scope for renegotiations," said Tony
Ballard, a partner and head of telecommunications at Field Fisher Waterhouse in London.
"They could give their licenses back but they wouldn't get their money back. There is no
mechanism in the licenses for operators to recover their money."
He noted that there were some existing mechanisms built in to the current legislation.
"Section five of the 1998 Wireless Telegraphy Act states that the Government could issue a
grant to an operator to release spectrum if such a grant would promote efficient use and
management of the spectrum."
EC to the rescue
Even if it were legally possible to return licenses, some believe that operators have missed
this opportunity. "In the U.K., the money has already been spent," said Jayasuriya. "There is
no going back. It would be a nightmare for Germany and the U.K."
Nonetheless, the Commission is actively considering rescue strategies.
An influential member of European parliament (MEP) Wim van Velzen, from the Netherlands,
has penned an action plan for reviving confidence in 3G that will be discussed at an informal
meeting at this week's European Council of Ministers meeting in Stockholm.
Van Velzen's plan calls for governments that conducted 3G auctions, particularly the U.K. and
Germany, to develop an annual payback scheme for license fees and guarantee loans for
licenses, which would result in lower interest rates for the operators. Van Velzen would also
like the European Investment Bank provide special loans with lower prices for the mobile
sector.
KPN Mobile, for one, would also like to see an extension of the license ownership period if
network rollouts are delayed. "If we're having difficulties in getting started in 2002, if the
technology isn't ready, then we would like to be compensated and have the license extended
by three more years, for example," said Joris van Voorthuizen, manager of European and
public affairs at KPN Mobile. He added that representatives of other operators will also be
lobbying European heads of state to support van Velzen's action plan.
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