Latecomers such as the US giant are not encumbered by
earlier mobile technology, writes Paul Durman
Sprint chief says Europe will lose
lead in race for 3G phones
Ford's feud with Firestone backfires
EUROPE'S proudest technological achievement is its
mobile-phone industry. America may lead the world in software,
biotechnology and computer networking equipment but Europe
has set the pace in wireless telecommunications. The rapid
take-up of mobile telephony has provided the foundation for the
enormous success of Vodafone, Orange and Nokia.
But all good things come to an end. According to one of the
most experienced leaders of the American telecoms industry,
Europe's happy position is about to face a profound threat.
Bill Esrey, chairman and chief executive of Sprint Corporation,
says: "What will [shortly] be available nationwide in the US will
be a leapfrog of what's available certainly in Europe and maybe
in most places in the world."
Esrey says Sprint will be able to move to the next generation of
mobile services much more quickly than its European rivals -
and at a fraction of the cost.
Much of the problem lies with the huge amount spent on
licences to provide third-generation (3G) services. The
possibility of transmitting video and music files over high-speed
connections persuaded Vodafone, Orange and the others to
stump up £22.5 billion last year to buy 3G licences for radio
spectrum in Britain. Worldwide, the telecoms industry is still
reeling from this binge.
The cost of licences in Britain and Germany has pushed the
total bill for introducing 3G to Europe to between $250 billion
and $300 billion (£180 billion-£220 billion). Mobile operators will
each have to spend up to $10 billion to install the network
equipment.
Compare that with Sprint, which owns America's fourth-biggest
and fastest-growing mobile business with 11m customers.
Esrey says it will cost Sprint only $1.5 billion to upgrade its
nationwide network, which in some areas will be 3G compatible
by the end of this year. Technical and other problems have
already delayed the European introduction of 3G until the
second half of next year, and many expect the timetable to slip
further.
What's more, Sprint's investment is no more than would have
been necessary to support the rapid growth of the American
mobile market. As a late entrant to the mobile business, it is in
the fortunate position that its network is based on so-called
CDMA technology - the basis for 3G services. In contrast,
British and other European networks rely on GSM, an earlier
digital technology.
In moving to CDMA, European operators will have to maintain
their GSM networks to compensate for the initial patchiness of
their 3G networks. This will require more complex phones with
dual GSM and CDMA capability - one of the problems being
blamed for the delays.
Esrey says: "We have to double the capacity of our voice
network [which] would cost us $1.5 billion. We're going to get
3G for no additional cost. We think we have a huge competitive
advantage."
He is sceptical about the reasons given for the delays to
Europe's 3G timetable. Rather than handset problems, he
suggests that European companies may be balking at the scale
of the investment required.
Esrey still recalls his reaction at hearing how much money the
British government had raised from the auction of 3G licences.
"My mouth dropped. I thought that's something that I don't
understand."
Does he understand it better now? "Yes. I understand it didn't
make sense."
However, some American companies also lost their heads.
Esrey recalls the auction of three blocks of radio spectrum in
New York City this year. By the time the cost of a licence
reached $800m, there were only three companies still bidding -
AT&T, Cingular and Verizon Wireless, which is 45% owned by
Vodafone.
But there was a problem: Verizon, the biggest American mobile
company, wanted two of the three blocks. To secure them, it
bid the price up to $4.1 billion.
Esrey says: "If [Verizon] had settled for one, it could have had it
for $800m and dropped out and stopped the auction. So it paid
$3.3 billion for the second block in New York City."
To put that in perspective, Sprint has spent a total of $3.4 billion
on licences in its history - and yet it believes it has enough
frequency for the next 10 years.
This gives Sprint the opportunity to contemplate a deal with Sir
Richard Branson's Virgin Mobile, the "virtual" network operator
that is keen to expand into America. In London last week,
Esrey brushed aside questions about progress in the long
negotiations with Virgin, but a deal to allow Virgin Mobile to
piggy-back on Sprint's network could be concluded before the
end of the month.
Esrey is a small, trim figure who has been Sprint's chief
executive since 1985. His brother has revealed that Esrey
decided he wanted to be a businessman at the age of eight. At
nine he changed his middle name to Todd out of respect for his
father, a middle-ranking executive with AT&T.
He started his own telecoms career at AT&T, although he also
spent 10 years on Wall Street as a senior executive at Dillon
Read, the investment bank. He returned to the industry in the
1980s when he joined United Telecom, the company that was to
become Sprint.
Today, Sprint has annual sales of $25 billion and combines
leading positions in the American mobile, long-distance and
internet carrier markets, which provide local phone services to
8m customers in 18 states. Its "bundled" approach is in stark
contrast with the strategy of AT&T and British
Telecommunications, which are splitting themselves up under
pressure from investors.
Sprint has its own problems. It has still to regain its stride after
competition regulators last year blocked a $129 billion merger
with WorldCom. Its share price has been further pummelled by
a series of profit warnings stemming from a ferocious price war
in the long-distance business. And with $20 billion of debt,
Sprint still needs to fund its investment programme by selling
shares in its PCS mobile business.
Delayed by the WorldCom negotiations, Sprint is belatedly
extending its internet network to Europe. Having established a
foothold in London in February, Sprint International plans to add
another 14 centres to its high-speed network by mid-summer.
Esrey says: "If you are serving 90% of the Fortune 500
companies as we do, you have to serve them whether they are
in London, Paris or Singapore. By the end of this year our IP
[internet protocol] network will cover 80% of the IP traffic around
the world."
Sprint is keen to stress that its European network is fully
integrated with its American network, which Esrey claims
should provide a better quality of service for its multinational
customers.
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Features
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Firestone
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