Phone Companies Raise Concern Over Singapore Auction Price

date: 22nd February 2001, source by: bloomberg.com

MobileOne Asia Pte., Sunday Communications Ltd. and other companies keen on bidding for high- speed cell phone permits in Singapore say high license fees may force some to pull out of the auction.

Singapore's minimum bidding price of S$150 million ($86 million), coming after phone companies got burned paying exorbitant license fees in Europe, may result in fewer than four bids for the four licenses being offered. The island state's sale has been delayed by three months to April on such concerns, and operators are now demanding a lower auction reserve price.

``We'd like to see a review of the reserve price if there are less than four bidders,'' Neil Montefiore, chief executive of MobileOne Asia, the island's second-biggest cell phone operator, said in an interview. ``If one operator is forced to pay a certain price, then there should be a level playing field.''

The license will allow operators to offer high-speed Internet services on cell phones. Their users would be able to download large files, including video clips, quickly. The government's auction plans if there are four or fewer bidders are being discussed in Parliament today.

Singapore's minimum bidding price, which analysts say works out to $87 for each of the island's four million residents, may be high based on recent auctions elsewhere, said Montefiore. In Switzerland, companies paid $17 per resident for such licenses, much less than earlier auctions. They paid $98 in Austria and $158 in the Netherlands, according to SG Securities Pte. A year ago, operators paid $595 for each resident in the U.K. and $557 in Germany.

Fourth Operator

The Singapore phone regulator has said it won't lower the base price for the April auction. If there are fewer than four bids, it has the option to price the remaining permits on market prices, which could be higher or lower than the reserve price.

``The Singaporean government is in a bit of a quandary,'' Craig Ehrlich, managing director at Hong Kong's Sunday Communications Ltd., said in an interview. ``We're quite concerned about the reserve price.''

Sunday has been building a business plan for a Singapore license, Ehrlich said. It hasn't decided if it will bid.

Granted, some analysts say the reserve price isn't unreasonable. The S$150 million fee for the 20-year license works out to about 1 percent of potential revenue over that period, which amounts to the same charges as existing phone licenses, analysts say.

``We estimate S$150 million per license is a reasonable clearing rate for each of the four 3G licenses,'' said Paul Zaman, an analyst at ING Baring Securities Pte. in Singapore. ``Setting the reserve is an auction tactic which only the regulator can decide upon.''

Future Price

For some operators, the base price isn't the biggest issue. Rather, it's the assurance that the regulator Infocomm Development Authority, or IDA, won't lower prices for future licenses.

``If IDA does not guarantee that, StarHub will have to seriously reconsider its decision to bid in this current auction,'' StarHub Pte., one of the three Singapore cell phone operators, said in a statement.

If StarHub, a serious bidder for a license, opts out, it would mean a setback to the government's auction, analysts said.

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