3G might be a bad investment after all - Part 1
August 19, 2002
- source: Datamonitor
Telefonica and Sonera axed their German joint venture, Quam, writing
off over E8 billion in the process. Sweden is lobbying the government
to ease off on license requirements. And several first- and second-
tier operators look increasingly likely to delay 3G service launches.
Optimists in the industry say all this is a setback, but not a
crisis. Recent industry announcements talk of "the 3G sweet-spot"
and in the same breath state that "it will take between three and
eight years for 3G license holders to break even".
But this isn't reassuring in the slightest, and should be seriously
worrying operator shareholders - three to eight years is hardly
a sweet spot. It's a long, drawn-out, death. No financier, VC or
enterprise would consider investing in something with payback "somewhere
in the next three to eight years".
License to lose
Besides, operators will not be around if it takes them any more
than three years to gain some sort of return. With junk status ratings;
share-prices with possibly another 10% to fall; industry rights
issues looming; massive over-expectation of potential MMS revenues
and discussion of technologies capable of leapfrogging 3G altogether,
it could be the beginning of the end for some.
Within the next three years, some license holders may shelve 3G
aspirations, possibly having to treat the cost of licenses as a
write-down. Despite the sunk costs of licenses and infrastructure,
it will still prove cheaper for them to abort 3G plans, rather than
to try and foster a market by subsidizing the handsets and services
required.
What will happen to these licenses? Telefonica and Sonera have
retained theirs, despite pulling the plug on Quam. It still has
residual value as an asset on the balance sheet. However, all it
takes is a couple more shaky operators and licenses may become available
at knockdown prices as part of debt-restructuring plans. Then, operators
who decided to concentrate on advanced 2.5G services instead may
get another bite of the cherry.
This all sounds rather implausible. Investing billions of Euros
in 3G licenses and infrastructure isn't a decision that anyone would
like to make in today's market, but surely rolling a service out
on top of such giant sunk costs makes more sense than potentially
abandoning the market altogether?
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3G Motorola A920
