UMTS license fees no longer budget savior
By : Jeffrey Sparshott
Last year governments across Europe looked at wireless telecom licenses as cash in the bank, expecting big firms to shell out large sums for rights to frequencies that permit new technology in cell phones and other wireless devices.
But the situation has changed dramatically as governments are forced to accept a different market reality. Poland, the biggest emerging Central European market, set the tone for third-generation (3G) mobile phone license tenders in the region when it failed to meet revenue expectations late last year. While the Czech government appears to be following a path similar to Poland's counting on hefty license revenues in the budget Hungary appears to have learned from the international example and is taking a more cautious approach.
"In terms of the three countries, the Hungarian government is least dependent on revenues from UMTS," said Peter Karli, a regional telecoms analyst with Wood & Co. in Budapest, referring to the universal mobile telecommunications system (UMTS), the standard for 3G networks in Europe. "Poland was very dependent and it appears to be the same for the Czech Republic. In Hungary, there is no such pressure on the budget."
And like Poland, Czech mobile telephone providers are not likely to meet government expectations.
"Probably the government based its calculations on examples from countries that were able to sell at quite a high price," said Miroslav Nosal, an analyst with Merrill Lynch. "Expectations came down based on the Polish example."
Poland expected five companies to pay e750 million each for 3G licenses. Corporate interest was underwhelming and the government moved in fits and starts, canceling the tender only to rearrange it to try and meet budget expectations. Still, Poland found only three companies Polska Telefonia Cyfrowa, Polkomtel and PTK Centertel that agreed to pay e650 million over an 18-year period. There is room for a fourth company, but Polish law forbids an additional auction until 2002.
Even with that and similar examples in Europe, Czech officials set their budgetary hopes on selling four licenses at Kc 5 billion ($129.5 million) each, though now it looks like three companies will pay Kc 2 billion-Kc 3 billion ($51.8 million-$77.7 million), Nosal said. Czech companies say they cannot justify a higher cost.
"With respect to the first round of the tender, the concern that we have is not with the structure but with the government's revenue expectations," said Igor P˝erovsk×, director of corporate communications for Cesk× Mobil, one of three operators in the country. "The Czech government set its revenue expectation of Kc 5 billion per license inspired by successfully held tenders in the U.K. and Germany. Cesk× Mobil believes that this expectation should be lowered.
"The recent tenders in Poland, France and Belgium are again a good indication of the waning interest in becoming a new UMTS entrant," he said. "In each of these countries, they were unable to attract any new entrants."
Last year Germany awarded six UMTS licenses for a total of $45.8 billion and in the U.K. five licenses raised $31 billion; tenders in other countries have since been more modest, with France receiving two bids for four available licenses and Belgium three bids for four licenses.
"The people who are interested in bidding for these have the benefit of hindsight now," said Thomas Chadwick, a London-based telecom analyst with Merrill Lynch. "They can start to say that prices elsewhere are beginning to be questioned by the market."
P˝erovsk× said a first-round license fee in the Czech Republic of about Kc 1.5 billion ($38.9 million) Kc 2 billion is reasonable. If, however, only three licenses are issued, a license fee of around Kc 3 billion might be justifiable, he added.
The companies also note that, while UMTS is promising, its technology will not be available for several years. UMTS allows broadband, packet-based transmission of text, digitized voice, video and multimedia transmission at nearly 40 times existing speeds. And the increased bandwidth of UMTS will make possible new services, such as video conferencing over advanced mobile devices. But that is still at least two years off.
"The earlier you buy a license, the lower the potential return will be," Karli said, explaining that the service still depends on how the technology is developed and its market acceptance. "It's not just a license issue," he said.
"Until 2005 or 2006, when UMTS technology is expected to be fully developed, a new entrant will have to compete for a share of the market for basic voice and lower data speeds to earn a return on its investment," P˝erovsk× said.
While Poland wrapped up its 3G sale in December and the Czech Republic wants the license fees for its 2001 budget, Hungary is taking its time. The Czech government announced in January that it wants to complete the tender by September. Hungary is aiming for the end of 2001, analysts said.
Gabor Frischmann, president of the Communications Authority of Hungary, said there is no final official timeframe for 3G and at this moment there is no revenue expectation, as the final decision on the method of allocation has not yet been made.
"The Hungarian government is investigating all European allocation processes to avoid replication of any failures made in other countries," he said.
