AWSJ(9/18) Hong Kong Closes Application For 3G Licenses
September 17, 2001
Dow Jones Newswires
By H. ASHER BOLANDE
Staff Reporter
HONG KONG -- The application process closes today for next-generation mobile licenses in Hong Kong, the final step before an auction expected to arouse weak bidding amid malaise surrounding the business case of new wireless technology.
The territory's Office of the Telecommunications Authority will hold the auction for four licenses later this week, but the exact day isn't announced yet - just one of the highly unorthodox aspects of the city's process for allocating spectrum for third-generation wireless services.
During the auction, bidders will be sequestered in separate rooms, unaware of the number or names of companies they bid against or of the value of rival bids. For that reason, the regulator isn't disclosing the identities of applicants in advance. Likewise, mobile operators are remaining silent about whether they will participate to avoid giving competitors any advantage.
Four of Hong Kong's six mobile companies have said they would likely seek licenses. The remaining two - Hutchison Telephone Ltd., the city's largest cellular-telephone provider, and CSL Ltd. - declined to comment but are expected to bid. Yet a significant question is whether the Hong Kong companies will bid individually or jointly, possibly with a foreign partner.
Analysts say there is little chance of a foreign telecommunications company jumping into the fray alone, but two multinational operators are indirectly involved through investments in local companies. Japan's NTT DoCoMo Inc. holds a 25% stake in Hutchison Telephone, and Australia's Telstra Corp. has a 60% stake in CSL, which is part of Regional Wireless Co., a joint venture between Telstra and Pacific Century CyberWorks Ltd.
Vodafone PLC's management said earlier this year that it wouldn't venture into smaller Asian markets while it focuses on assimilating recent acquisitions and big markets like China and Japan. Singapore Telecommunications Inc. has sought a partner in Hong Kong for years, but has declined to reveal whether it will take part in the auction.
Hong Kong is one of the most competitive mobile markets in the world, with six operators vying for seven million people, of which 80% use mobile phones. While the government's innovative auction model seeks to remedy some of the problems associated elsewhere with auctions for third-generation licenses, analysts say its complex procedures and conditions make the outcome an unclear gauge of 3G sentiment.
Cool heads are expected. In contrast to last year, when operators in Europe paid billions for 3G licenses at auctions, confidence in the profitability of 3G service has been severely shaken globally. Uncertainty about the economic impact of last week's terrorist attacks in the U.S. won't help matters, especially for the operators' financial backers, said Ross O'Brien, the Hong Kong-based director of research at Strategic Consulting.
Because Hong Kong requires license winners to lease at least 30% of their 3G-network capacity to other companies, bidders risk less by bowing out early if prices mount. "You don't have to be in the infrastructure game to be in the 3G game," Mr. O'Brien said.
In addition, the blind-bidding process makes it easier for operators stick by a predetermined maximum bid, without being encouraged to outbid rivals. "It's intended to take away the game play and make operators bid according to their business plan," said Ni Quiaque Lai, an analyst at Credit Suisse First Boston.
He and other analysts expect the auction to fix a uniform license price of between 5% and 6.5% of future 3G revenues. Hong Kong decided to base its 3G auction on a percentage of operators' revenues to avoid burdening companies with heavy upfront costs rather than on fixed license fees to be paid immediately as other governments have done. Still, regardless of sales, license holders are required to pay annual minimum fees that start at HK$50 million (US$6.4 million) in the first five years and rise sharply thereafter.
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