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Technology Stocks : Qualcomm Moderated Thread - please read rules before posting -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (3144)	9/15/2000 9:23:33 AM
From: voop	Respond to of 196724

Countries with low or no cost 3G spectrum is going to murder the countries that forced an uncompetitive high cost base on their domestic carriers. Hmmm Maybe the G7 will look a little different in 8-10 years.

To: Ramsey Su who wrote (3144)	9/15/2000 9:48:17 AM
From: Jack Bridges	Read Replies (1) \| Respond to of 196724

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

To: Ramsey Su who wrote (3144)	9/15/2000 7:29:25 PM
From: Maurice Winn	Read Replies (2) \| Respond to of 196724

Ramsey, you are in luck. Here is futurist Mqurice to explain it to you. The underlying false thinking with complaints about governments charging lots for spectrum is that WWeb will be priced at the sum of the component costs plus profit. That is NOT the case. It will be priced at a market clearing price. That means that the spectrum, which is a limited resource, will be sold to the highest bidding subscriber. It does not matter how much was paid for it. The service providers will charge what they can get away with. Since there are obviously going to be hordes of WWeb users clamouring for space in the spectrum [that's why the service providers have bid so much], the service providers are going to charge a price high enough so the system isn't overloaded. It's called a market. Supply and demand. Also the letter written by Dr Forest was great! It explained it perfectly. But what we DON'T want, is China to read his letter. We want China to hold a beauty contest which requires TOTAL CDMA buildout in every nook and cranny across China and we want everyone to be issued free phones! The beauty contest winners can get their money back by charging per minute. That should be how Korea and China do it. Heh,heh! You think they'll fall for it? That way CDMA will be HUGE and Q! will get royalties they will NOT get from the German, UK and other high-priced auctions where the government gets the money and will not be spending it on CDMA. Q! should have had higher royalties on CDMA. Too late [pretty much]. So the next best thing is a beauty contest. Just remember, Three Bucks Full. $ for spectrum $ for Q! $ for the SP. If one misses out on part of theirs, the other gets it. Q! has missed out [by undercharging for royalties]. The governments can capture that by spectrum auction. If the government also forgoes their buck, then the SP gets all $3. The user will NOT get cheaper WWeb since there is NOT enough spectrum for everyone - it will be rationed by price. Mqurice PS: Here, again, is Dr John Forest's letter. I think it is really good. Britain is lucky to have people like him. No wonder the NZ$ is going down compared with UK pound [and US$ etc] Message 14390854 ============================================================ Dear Mr Bridges Thank you for your email of 1 September about the UK's 3G mobile auction. You raise some interesting points. Some of these are perhaps better addressed to the manufacturers and operators but you may find the following thoughts helpful. To put these into context you need to understand why the UK Government decided to allocate 3G licences by auction. The chief alternative allocation method to auctions is comparative selection or so-called "beauty contests." In this approach, government officials judge the applicants' proposals, choose the "best" - and then award licences accordingly. But how do officials establish the value of the spectrum, particularly for new and largely untested technologies - while avoiding the pressures to favour existing operators? How do officials choose between promises by competing companies? An auction can, by using market forces, overcome many of these problems. A well-designed auction is both economically efficient and fair. It is economically efficient because licences will go to the highest bidders - those who value them most and can be expected to make best use of them. Auctions are objective and their outcome is easy to understand. They avoid putting the onus on officials (or even appointed "experts") to out-guess the markets as to how new technologies and services will develop. You ask what forces stimulated the gap between the media predictions of up to £5 billion and the final outcome. In an auction it is the market rather than government that places a value on the spectrum. Auctions force bidders to calculate the true value of a spectrum licence to them and make these valuations transparent. In simple terms what the companies bid in the 3G auction will have reflected their valuations of what the licences were worth to them or in other words their long-run return on investment. A bidder's valuation will also be informed during the auction process by the value that others place on a licence. Presumably however, the auction's participants knew in advance of the auction that their valuations far exceeded the £1 billion per licence suggested by media pundits. I leave it to you to conclude whether the media predictions reflected informed industry sources. There will of course been many factors that could have affected company valuations in the UK auction including, inter-alia: the UK policy backdrop (the UK is an open, transparent and deregulated market); the structure of UK market; the timing of the auction; measures to attract a new entrant; and the market's perception of the growing demand and opportunities for internet and mobile data services. Transactions that take place after the auction throw further light on the value of the spectrum. The recently announced sale, to NTT DoCoMo, the Japanese mobile-phone giant, and KPN, the Dutch telecom titan, of 35% of the holding company, Hutchison 3G U.K. Holdings, for the UK's new entrant 3G licensee, values that licence at about GBP 6 billion ($9 billion) -considerably more than the GBP 4.4 billion ($6.6 billion) it sold for at auction. You suggest that the Government has imposed a £23 billion tax burden on the consumer. But competition forces companies to set their prices against those of rival firms, not by reference to the licence fee, which is a one-time sunk cost. A cafe owner will price his coffee according to what his competitors are charging and what his customers will pay - not by the cost of his coffee machine. Why should mobile-phone operators act differently? Companies will always seek to maximize profits. It is very unlikely that prices for 3G services would be lower even if the licences were given away for free. It is interesting to note how prices for mobile phones fell following the entry of Orange and One 2 One into the market. In the UK increased competition from a new entrant for 3G will be the key factor in keeping costs down and spur to innovation. If companies set costs too high demand and revenue will both fall. To recoup their investment companies will be anxious to get services on the market quickly at attractive prices. The UK Government believes that the outcome of the auction provides the best possible basis for the early introduction of 3G services. Which technology the operators use is a commercial decision for them. The UK auction was technology neutral in that it allowed operators to use any of the technologies that were part of the internationally agreed standard for 3G known as IMT-2000. This included a standard based on the CDMA technology (CDMA 2000). As you may be aware, despite the openness of the UK auction to different IMT-2000 technologies, all the bidders decided to adopt the UMTS technology which is being developed by an international partnership of regional standards bodies including the European body ETSI. On the issues of the influence of the banks and equipment suppliers I will only say that I would be surprised if either thought it was in their interests to encourage operators to overbid for licences or to overextend themselves. Indeed I believe equipment manufacturers are concerned that they will come under pressure to share the costs of infrastructure development. Finally you ask whether the Radiocommunications Agency (RA) was aware of the conflicting interests which influenced the outcome of the 3G auction. As they spent nearly two years consulting in detail with the industry on the auction process it is likely that they were. The RA's objectives were to ensure the economically efficient allocation of licences and use of spectrum. By using an auction they have achieved this and allowed market forces to sort out the conflicting interests. They have also revealed just how valuable companies consider 3G spectrum to be and ensured that some of this value is shared with the community as a whole. Yours sincerely Dr John Forrest