Government greed ruins lives, ruins portfolios, and ruins Europeans chance for broadband wireless communications for a generation:
Europe's Telecom Firms Paid Billions For '3G' Licenses, Costs Still Loom
By ALMAR LATOUR
Staff Reporter of THE WALL STREET JOURNAL
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For Europe's governments, 3G also promised to produce a revenue windfall. In Britain, communications regulators consulted two professors, Ken Binmore and Paul Klemperer, among others, on how to auction licenses for radio spectrum to operate 3G services. The duo used game theory to create an elaborate auction process under which several licenses could be sold simultaneously.
The professors designed the auction in such a way that the proceeds for the government would be maximized: Five licenses were to be auctioned off at the same time. Of those, four could be expected to go to incumbents, which each more or less needed to survive in their home market. The remaining fifth license could go to a new entrant -- and would drive the bidding process because it would attract newcomers eager to step in.
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It wasn't until round 94, nearly four weeks after the start of the auction, that the first of the 13 bidders dropped out, at a price level of more than$3 billion. Four other bidders followed shortly thereafter, leaving eight bidders for five licenses.
At round 150, France Telecom SA gave up and five winners were left: Deutsche Telekom's one2one, Hutchison Whampoa Ltd., Orange SA, BTand Vodafone Group PLC. Hutchison subsequently sold 20% of its license to DoCoMo and 15% to KPN, while Orange was acquired by FranceTelecom, which in that way secured a UK license of its own after theprocess. "1 billion pounds or 10 billion pounds, the psychology is thesame," says Mr. Klemperer. "These bidders wanted a license at any cost."
From the government's point of view, their theories worked magnificently: The auction of five licenses last July brought in a total of $34 billion, more than seven times what was originally expected.
When other European countries saw how much money Britain had raked in, some of them came up with similar rules for their own auctions. If these licenses were so precious, politicians reasoned, phone companies should pay accordingly. The phone companies, figuring they couldn't afford not to be part of the 3G revolution, duly bid each other up higher and higher. In Germany alone, six licenses were auctioned for a total of $45 billion.
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As plans moved forward, European business leaders and politicians could barely stop gloating. For once, the Old World appeared to be leading the U.S. in the development of an important new technology. Mobile telephony, they said, would create a brave new wireless world and perhaps even give birth to an economic miracle. President Clinton warned that unless U.S. tech companies quickly got involved in 3G, there would be a wireless gap.
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Now logic is being reasserted, sometimes brutally. KPN, which paid 8.9 billion euros ($7.5 billion) for licenses, has slashed its work force by 8,000, or 19%, to help cut costs. Its shares are off nearly 88% since their peak in March last year, and the company is considering going back to shareholders to raise more cash.
Germany's Deutsche Telekom AG shelled out nearly 16 billion euros for licenses, helping swell its debt 53% in the past year to 56.8 billion euros. Its stock has tumbled 70% since its high last March.
Institutional shareholders of British Telecom, meanwhile, indignant at the 67% drop in BT's share price since early last year and alarmed by the company's debt of 28 billion British pounds ($19.8 billion), have pressured BT into abandoning its dream of becoming a global operator.
interactive2.wsj.com
From the government's point of view, their theories worked magnificently: - Get the money,
DAMN the consequences for the companies, employees, consumers, and owners.
Just GET THE MONEY.
Clinton's just pissed the US Treasure didn't join in the plunder. |
