High-risk factors have made firms wary of bidding for third-generation mobile phone licences, writes Jamie Smyth.
The contest to award four third-generation mobile phone licences began with a whimper yesterday with just three companies entering the bidding. Only one new entrant bid for a licence and this firm, Hong Kong-based Hutchison Whampoa, is not even guaranteed to secure the A licence.
The limited interest shown by Europe's mobile firms, most of whom are facing financial problems, will cost the Exchequer at least €114 million, and possibly more, depending on which firm is judged to have submitted the best technical bid for one A licence.
It is also a disappointing result for consumers here who would have hoped for greater competition to reduce the prices of third-generation mobile services in the future. The decision by Orange not to bid raises questions about its future interest in the Irish market.
The flop of yesterday's Irish "beauty contest" serves to underline the naivety shown by the Department of Finance last year in seeking fees of up to £550 million (€433 million). The resulting year-long stand-off between the regulator, Ms Etain Doyle, who sought lower fees, and the Minister for Finance, Mr McCreevy, who aimed to maximise the take for the Exchequer, has now resulted in a lower net inflow to the Exchequer than would have been possible in 2001.
The telecoms regulator reserves the right to re-issue licences not taken up in this competition but such a move would prove controversial as successful bidders could claim this would discriminate against them, if it secured a lower price. Most analysts yesterday said the depressed state of the telecoms and technology industries - highlighted by NTL and ITV Digital's problems yesterday - meant firms were simply unwilling to risk investing in markets and technologies which are unproven. Huge sums would be required by new entrants to roll out networks and successfully market third-generation services to consumers here.
"I think a new entrant would be better off applying to enter a religious institution than applying for a 3G licence," said Mr Ultan Ryan, a consultant with Mason Communications. "I estimate an operator would have to have a minimum of 30 per cent of the Irish market to justify the investment."
Mobile firms are also somewhat justified in their complaints about current Government policy which seeks to charge huge sums for licence fees - essentially the right to supply broadband services - while at the same time offering fixed telecoms firms €300 million State grants to build out their own broadband networks, which will eventually compete with third-generation technology.
The disappointing level of interest shown by firms in the contest yesterday has precedents in several European states. In France, the regulator was forced to slash the price of licences when just two companies agreed to enter its third-generation contest. And recently the Italian mobile operator Blu was forced to hand back a licence in Italy.
The unproven nature of third-generation mobile technology is also a major concern for operators. Most observers believe the technology won't be offered to consumers in Europe until late 2004 and possibly 2005 as interim technologies such as general packet radio service fail to excite consumers.
There is also a range of competitive threats from technologies such as wireless local area networks and personal area networks that can offer companies cheaper ways to offer similar services.
There is also little evidence that consumers will be willing to pay high costs for applications, such as video conferencing, on mobiles. Therefore, many analysts predict licence holders here will only build 3G networks in urban centres, and some operators may even consider defaulting on stringent roll-out commitments in their licences to save cash.
