3g-g
31st July 2006, 02:42 PM
3G licences a liability for the operators? 2G GSM still the way forward? The government the reason we're all still having to pay so much so the Operators make some money back?
It's a long article, so I've cut a few paragraphs, however a good read. There's some great points worthy of discussion in here. The link to the original is at the bottom. So how do the operators claw back the £129Bn they've spent on 3G, when in the UK, 3 excluded, they'd be lucky if they have a million customers using UMTS on each of the networks. Ringtones and SMS aint going to bring the cash in quick enough!
European mobile phone companies spent $129 billion six years ago to buy licenses for "third-generation" networks that were supposed to give people the freedom to virtually live from their cellphones, reading e-mail, browsing the Internet, placing video calls, enjoying music and movies, buying products and services, making reservations, monitoring health - all from the beach, the bus, the dentist's waiting room, wherever they were.
But today, most people use their cellphones just as they did in 2000 - to make calls - and the modest gains 3G has made do not begin to justify the massive costs of the technology, which has strapped some mobile operators financially, bankrupted entrepreneurs, spurred multibillion-euro lawsuits against governments and phone companies, and sapped research spending.
Over the long term, 3G runs the risk of becoming the Edsel of the mobile phone industry - an expensive, unwanted albatross rejected by consumers and bypassed by other, less costly technologies, some experts say.
Even Vodafone, the biggest network operator in Europe, which since 2000 has spent $34 billion buying 3G licenses and building 3G networks, made just 3.8 percent of sales in the quarter ended March 31 from 3G's supposed "killer application" - high-speed wireless data.
For many, that is not enough to justify 3G's costs. On July 20, Vodafone said it was scrapping its 3G network in the Czech Republic, citing the technology's excessive costs. Vodafone's Czech subsidiary spent $87.7 million on a 3G license in February 2005.
"Telecom companies misjudged the value of 3G licenses and paid way too much. Governments holding the auctions were only too happy to oblige, basically blackmailing the industry," said Joachim Dreyer, the former chief executive of Debitel, a phone service reseller that unsuccessfully bid for a German 3G license in 2000. "There was a failure from the top on down."
The most recent signs are not encouraging.
Some European investors - who once sought out the stocks of 3G licenseholders - now view the licenses as financial liabilities because they commit operators to building out national networks that do not make sense commercially.
"Generally, we consider a 3G license to be a liability, not a plus," said Torsten Krumm, a partner at Apax Partners, a venture capital firm with €18 billion, or $22.9 billion, under management. "I don't think 3G has met its promise. The high license fees and capital expenditures for the operators have been very substantial, with very little in return."
Unsuccessful bidders for 3G licenses in 2000 and 2001 like Debitel of Germany now claim to be the winners, because they avoided billions in extra costs. Meanwhile, KPN of the Netherlands is still paying interest on the loans it took out to buy its German 3G license, which KPN said lost most of its value within two years of the auction.
An auction in Britain, which lasted 150 rounds over seven weeks in March and April 2000, raised £22.5 billion, worth $35.4 billion at the time.
Over the 18 months through September 2001, 20 auctions and so-called beauty contest selections in Europe, Asia, Australia and New Zealand raised $129 billion in licenses fees.
Alan Harper, director of strategy at Vodafone, based in Newbury, England, defended the investments.
"Yes, 3G was worth it," Harper said. "You need to look beyond those headline numbers. Clearly what that investment is doing is part of a broader technology evolution. 3G is the technology platform of the future."
Carriers other than Vodafone are pruning their 3G ambitions. Orange pulled out of Sweden, a country that gave away 3G licenses for free, after deciding it was not worth it to fulfill a requirement to build networks serving 78 percent of Swedes by 2005.
Vodafone has spent £18 billion, or $33 million, on 3G licenses and network construction since 2000, according to its financial reports. In the quarter that ended March 31, Vodafone had sales of £277 million from 3G data. Applying Vodafone's after-tax profit margin for that period of 15.2 percent, those sales made £42 million profit. At that rate, Vodafone would need 107 years to recoup the total cost of its 3G investment.
Hutchison Whampoa, a shipping and telecommunications group based in Hong Kong, spent 194.2 billion Hong Kong dollars, or $25.2 billion, on 3G licenses and construction, according to financial records. From 2003 through 2005, Hutchison posted total losses of $11 billion on its 3G operations, including $3.5 billion last year.
T-Mobile of Germany has spent €15.8 billion on 3G licenses and construction, according to annual reports. From 2000 through 2004, parent Deutsche Telekom took write-downs of €5.4 billion, which it said reflected the revised value of its 3G licenses.
The cost of the 3G licenses, executives complain, sapped operators' resources and their ability to develop commercial services. Because the auctions coincided with the collapse of the Internet stock market bubble, tracing 3G's effect on individual stock prices is not possible, executives say.
But according to Paul Stodden, chief executive of Debitel, the German mobile service reseller that tried but failed to buy a 3G license, the effects were substantial. "Not getting that 3G license was a stroke of luck and the best thing that could have ever happened for us," Stodden said. "Not only was the technology bought for way too much money, the operators still don't really know what to do with it."
Executives say governments took advantage of the industry to open new sources of revenue. "The government auctions bled industry dry," said Brian Copsey, a former British government radio frequency expert who is a consultant in Edgecott, England.
But nobody forced the operators to bid as high as they did, one auction architect said.
"The reason for the failure of 3G has nothing to do with the auctions," said Paul Klemperer, an Oxford University professor hired by the British government to design its auction. "Fundamentally, they believed these things were worth what they paid for them."
In Germany, six competitors bid up license fees to €8.4 billion, even after Debitel dropped out at €5 billion. Vodafone's Mannesmann tried to signal to others to stop raising the ante by entering bids ending in the numeral 6, said Frank Riedel, an economist at Humboldt University in Berlin who advised Mannesmann at the auction.
Five mobile operators in Britain- Vodafone, Orange, T-Mobile, 3 and O2 - are suing the British government to recover £3.35 billion they claim were value-added taxes included in the license fees. A hearing was held at the European Court of Justice in February and a decision, which could set a precedent for operators across Europe, is expected later this year, Boll said.
Despite 3G's slow start and high costs, operators say the technology, which can handle a greater volume of voice traffic than GSM networks, is here to stay. That is largely the case already, with most GSM networks being refitted to 3G standards to carry the bulk of the voice traffic.
"If I had the chance to do it over again, I would still get a 3G license," said René Obermann, chief executive of T-Mobile International, based in Bonn, with 3G networks in six countries.
Even the E-Plus chief executive, Thorsten Dirks, whose company has yet to turn an annual profit from 3G, is optimistic. From 1992 to 1997, Dirks said, GSM phones reached 10 percent of Germany's population. From 1997 to 2002, penetration leapt to 80 percent. 3G's development, he said, will be similar.
"That is how this business works," Dirks said
http://www.iht.com/articles/2006/07/30/business/3G.php
It's a long article, so I've cut a few paragraphs, however a good read. There's some great points worthy of discussion in here. The link to the original is at the bottom. So how do the operators claw back the £129Bn they've spent on 3G, when in the UK, 3 excluded, they'd be lucky if they have a million customers using UMTS on each of the networks. Ringtones and SMS aint going to bring the cash in quick enough!
European mobile phone companies spent $129 billion six years ago to buy licenses for "third-generation" networks that were supposed to give people the freedom to virtually live from their cellphones, reading e-mail, browsing the Internet, placing video calls, enjoying music and movies, buying products and services, making reservations, monitoring health - all from the beach, the bus, the dentist's waiting room, wherever they were.
But today, most people use their cellphones just as they did in 2000 - to make calls - and the modest gains 3G has made do not begin to justify the massive costs of the technology, which has strapped some mobile operators financially, bankrupted entrepreneurs, spurred multibillion-euro lawsuits against governments and phone companies, and sapped research spending.
Over the long term, 3G runs the risk of becoming the Edsel of the mobile phone industry - an expensive, unwanted albatross rejected by consumers and bypassed by other, less costly technologies, some experts say.
Even Vodafone, the biggest network operator in Europe, which since 2000 has spent $34 billion buying 3G licenses and building 3G networks, made just 3.8 percent of sales in the quarter ended March 31 from 3G's supposed "killer application" - high-speed wireless data.
For many, that is not enough to justify 3G's costs. On July 20, Vodafone said it was scrapping its 3G network in the Czech Republic, citing the technology's excessive costs. Vodafone's Czech subsidiary spent $87.7 million on a 3G license in February 2005.
"Telecom companies misjudged the value of 3G licenses and paid way too much. Governments holding the auctions were only too happy to oblige, basically blackmailing the industry," said Joachim Dreyer, the former chief executive of Debitel, a phone service reseller that unsuccessfully bid for a German 3G license in 2000. "There was a failure from the top on down."
The most recent signs are not encouraging.
Some European investors - who once sought out the stocks of 3G licenseholders - now view the licenses as financial liabilities because they commit operators to building out national networks that do not make sense commercially.
"Generally, we consider a 3G license to be a liability, not a plus," said Torsten Krumm, a partner at Apax Partners, a venture capital firm with €18 billion, or $22.9 billion, under management. "I don't think 3G has met its promise. The high license fees and capital expenditures for the operators have been very substantial, with very little in return."
Unsuccessful bidders for 3G licenses in 2000 and 2001 like Debitel of Germany now claim to be the winners, because they avoided billions in extra costs. Meanwhile, KPN of the Netherlands is still paying interest on the loans it took out to buy its German 3G license, which KPN said lost most of its value within two years of the auction.
An auction in Britain, which lasted 150 rounds over seven weeks in March and April 2000, raised £22.5 billion, worth $35.4 billion at the time.
Over the 18 months through September 2001, 20 auctions and so-called beauty contest selections in Europe, Asia, Australia and New Zealand raised $129 billion in licenses fees.
Alan Harper, director of strategy at Vodafone, based in Newbury, England, defended the investments.
"Yes, 3G was worth it," Harper said. "You need to look beyond those headline numbers. Clearly what that investment is doing is part of a broader technology evolution. 3G is the technology platform of the future."
Carriers other than Vodafone are pruning their 3G ambitions. Orange pulled out of Sweden, a country that gave away 3G licenses for free, after deciding it was not worth it to fulfill a requirement to build networks serving 78 percent of Swedes by 2005.
Vodafone has spent £18 billion, or $33 million, on 3G licenses and network construction since 2000, according to its financial reports. In the quarter that ended March 31, Vodafone had sales of £277 million from 3G data. Applying Vodafone's after-tax profit margin for that period of 15.2 percent, those sales made £42 million profit. At that rate, Vodafone would need 107 years to recoup the total cost of its 3G investment.
Hutchison Whampoa, a shipping and telecommunications group based in Hong Kong, spent 194.2 billion Hong Kong dollars, or $25.2 billion, on 3G licenses and construction, according to financial records. From 2003 through 2005, Hutchison posted total losses of $11 billion on its 3G operations, including $3.5 billion last year.
T-Mobile of Germany has spent €15.8 billion on 3G licenses and construction, according to annual reports. From 2000 through 2004, parent Deutsche Telekom took write-downs of €5.4 billion, which it said reflected the revised value of its 3G licenses.
The cost of the 3G licenses, executives complain, sapped operators' resources and their ability to develop commercial services. Because the auctions coincided with the collapse of the Internet stock market bubble, tracing 3G's effect on individual stock prices is not possible, executives say.
But according to Paul Stodden, chief executive of Debitel, the German mobile service reseller that tried but failed to buy a 3G license, the effects were substantial. "Not getting that 3G license was a stroke of luck and the best thing that could have ever happened for us," Stodden said. "Not only was the technology bought for way too much money, the operators still don't really know what to do with it."
Executives say governments took advantage of the industry to open new sources of revenue. "The government auctions bled industry dry," said Brian Copsey, a former British government radio frequency expert who is a consultant in Edgecott, England.
But nobody forced the operators to bid as high as they did, one auction architect said.
"The reason for the failure of 3G has nothing to do with the auctions," said Paul Klemperer, an Oxford University professor hired by the British government to design its auction. "Fundamentally, they believed these things were worth what they paid for them."
In Germany, six competitors bid up license fees to €8.4 billion, even after Debitel dropped out at €5 billion. Vodafone's Mannesmann tried to signal to others to stop raising the ante by entering bids ending in the numeral 6, said Frank Riedel, an economist at Humboldt University in Berlin who advised Mannesmann at the auction.
Five mobile operators in Britain- Vodafone, Orange, T-Mobile, 3 and O2 - are suing the British government to recover £3.35 billion they claim were value-added taxes included in the license fees. A hearing was held at the European Court of Justice in February and a decision, which could set a precedent for operators across Europe, is expected later this year, Boll said.
Despite 3G's slow start and high costs, operators say the technology, which can handle a greater volume of voice traffic than GSM networks, is here to stay. That is largely the case already, with most GSM networks being refitted to 3G standards to carry the bulk of the voice traffic.
"If I had the chance to do it over again, I would still get a 3G license," said René Obermann, chief executive of T-Mobile International, based in Bonn, with 3G networks in six countries.
Even the E-Plus chief executive, Thorsten Dirks, whose company has yet to turn an annual profit from 3G, is optimistic. From 1992 to 1997, Dirks said, GSM phones reached 10 percent of Germany's population. From 1997 to 2002, penetration leapt to 80 percent. 3G's development, he said, will be similar.
"That is how this business works," Dirks said
http://www.iht.com/articles/2006/07/30/business/3G.php