3G paying the price

As the financial situation worsens for Europe's telecoms, shareholders question whether next-generation mobile phone services can ever produce a return on the massive investment in securing the operating licences.

Xfera, the Spanish 3G operator, announced 70 per cent job losses, from 600 employees

down to 160. The news follows similar

announcements as Europe's major telecoms groups struggle to deal with spiralling debt,

plummeting share prices and the delay of 3G - the next generation of mobile phone

technology.

3G technology, it is hoped, will generate the next great wave of growth in the mobile phone industry. 1t will allow mobile phones to receive internet, video and emails faster than by fixed line and modem. With voice traffic set to fall, mobile data services are

seen as the future. Major telecoms players hope the new technology will repeat the growth that made mobile phones a fashion icon and the economic success of the 1990s.

However, in order to run 3G networks,

these companies needed government

licences. Aware of the importance of these

licences, governments held auctions and sold them to the highest bidders. The first of these auctions, in the UK, cost the six licenceholders a total of f20bn ($14bn). As this process was repeated across Prance, Germany and Spain, international telecoms groups were forced to buy several licences in order to operate across Europe. The UK

telecoms group BT, for example, paid a total

of $30bn. BT argues that it had no choice but to pay what was necessary to secure the licences as without them it would have no future in the industry. '3G is the future of Europe's mobile telephony. Without it, you're dead,

says industry analyst Pia Nielson.

Nevertheless, the cost of the licences has

~ driven up debt levels across the European

telecoms sector. BT has doubled its debt to

:3Obn ($21bn) while Deutsche Telekom, its German counterpart, is now $50bn in debt. These huge debts leave licenceholders badly positioned to invest in the infrstructure reuired to support the new technology. Operators face bills of up to $45bn to improve network quality before they can roll out 3G services on a European basis. Originally scheduled for launch in 2001, widespread 3G access might now be delayed until 2003.
the spiralling debt and delays in bringing the new technology to market have hit shareholder confidence. Within monthx, BT shares fell from $ 15 to $%. similarly, france Telecom and deutsche Telekom shares have lost 71 and 74 per cent of their value.

it is not only shareholders losing faith in telecoms. Standard & Poor, the credit rating agency, has slashed BT´s credit rating from AA polus to A –raising the cost of financing its huge debt. Debt management is now key to the survival of Europe´s telecoms, with several companies already disposing of overseas assests to cut debt. Analysis also expect mergers and alliances in the sector and that network sharing will reduce costs.

Another problem facing licenceholders is anticipating customer needs. Will mobile internet services be populare enough for companies to make the licences pay?. the mobilephone has etablished itself as a lifestyle icon just as hevily influenced by fashion as by technological advcances. Lifestyle brands such as Nike or Virgin may be better equipped to market 3G services than Europe´s global telecoms groups.

Howver themajor problem will be price. having paid so much for licences, operators will have to pass this cost on to customers. the telecoms companies were willing to pay the price for 3G. It remains to be seen whether the customer will.

I What is a 3G mobile phone?

a) a mobile phone you can use anywhere in the world

b) a mobile phone that can receive internet and video

c) a very small and fashionable mobile phone

a) the technology will cut their operating costs.

b) it could give them a competitive advantage.

c) they think it is the future standard of all mobile phones.

3 Why were the 3G licences so expensive to buy?

a) ßecause there is only one licence for each country.

b) ßecause governments made companies bid against each other

c) ßecause companies can make huge profits from them.

a) the technology has not been fully developed yet.

b) not all the government licences have not been sold yet.

c) networks are not able to operate them yet.

a) how to make the technology work

b) how to repay the money they owe

c) how to establish agiobai presence

a) persuading customers to pay a premium for them

b) giving them a trendy lifestyle image

c) selling the same services in many different countries

. --

correct answers:

2c

3b