UMTS tender foul-up may not deter future investment

Last week's cancelation of the controversial tender raises questions of the efficency of public administration, but not enough to scare foreign investment.
By : Roseanne Gerin

   The annulment of the controversial third-generation mobile phone tender last Wednesday was a clear-cut example of governmental inefficiency, but it would not deter foreign companies from future investments in the telecom sector, industry observers said last week.

   The Communications Ministry nullified the tender to eliminate the risk of lawsuits by prospective bidders that were displeased with a last-minute change in the universal mobile telecommunications system (UMTS) tender procedure. Two days before the Dec. 2 bid deadline, the ministry said that it would divvy up leftover blocks of frequencies if fewer than five permits were issued. Some prospective bidders said they considered taking legal action against the ministry for changing the terms of the tender after issuing the official documentation. In October, the ministry made other changes when it extended the deadline for the submission of bids and eased some of its more controversial requirements.

   “There was a bad attitude when the rules were changed after the tender was announced,” said Pawe3 Zach, a telecom analyst at Citibank Poland. “It was not what investors would have expected.”

   Citing provisions in the tender documentation as well as in the telecom law of 1990, the ministry canceled the tender after it received only three bids from local mobile operators, Polska Telefonia Cyfrowa, Polkomtel and PTK Centertel. The ministry said it would extend the firms’ existing GSM licenses to include UMTS service at a price of EURO 650 million each. The tender documentation sold in October had been purchased by 19 interested foreign and domestic entities.

   “The opening of the bid in such a rush and in a substantially short period of time ... raises the question of the efficiency of public administration,” said Krzysztof Stefanowicz, a partner who specializes in telecom and information technology law at the Warsaw office of Salans, Hertzfeld & Heilbronn. “It could have been resolved financially … by giving the three GSM operators the licenses without them bidding.”

   When the ministry canceled the tender last week, it said the license winners could launch UMTS service on Jan. 1, 2003 and that it would sell a fourth license “when legal and market conditions allow.” The new telecom law, which takes effect Jan. 1, does not permit any new licenses to be issued during a yearlong transition period, so the fourth license would have to be issued after Jan. 1, 2002.

   The ministry’s missteps in handing the UMTS tender caused the major foreign player, Telefónica of Spain, to resign, said Piotr Rutkowski, a managing partner of Rotel, a Warsaw-based telecom consultancy that advises Parliament on regulatory issues. Telefónica, which is aggressively buying UMTS licenses in Europe, declined to give a reason for withdrawing from the UMTS tender.

   “(Telefónica) didn’t state a reason for pulling out, although it was motivated by the inefficiency of the government,” Rutkowski said.

   Other foreign companies that were interested in the tender but withdrew include Hutchinson Whampoa of Hong Kong, Turkish telecoms Turkcell and Rumeli, Canadian operator Telesystem International Wireless and Italian mobile operator TU Mobile.

   But foreign telecoms will not be put off from participating in future tenders after the new telecom law, which establishes regulatory procedures according to European Union standards, takes effect, industry observers said. “The licensing policy will be much cleaner and not so confusing for new investors because it will be a much more transparent (process),” Rutkowski said.

   But with the development of UMTS technology just getting started worldwide, foreign telecoms would likely rekindle their interest in Poland’s telecom market once third-generation mobile service starts in Europe, industry observers said.

   Wac3aw Iszkowski, president of the Polish Chamber of Information Technology and Telecommunications, an organization that promotes Poland’s telecom and IT markets, said that once UMTS were operational in other European countries, foreign investors would probably show an interest in participating in the sale of the fourth UMTS license in Poland.