Angry shareholders may sue over 3G

date: 17th January 2001, source: silicon.com

Angry shareholders could sue governments, consultants and investment banks if the high cost of 3G licences brings mobile networks to their knees and devalues their stock, according to Forrester Research.

In a report published last week, analysts at the research firm predicted that all but five European mobile networks would go bust or be swallowed up, due to falling revenues and the massive costs of 3G licences.

The report said: "Shareholders in high-licence-cost countries will sue governments for destroying the profitability of the mobile industry by imposing huge licence costs. The French, German, and UK governments will spend years in courts, learn their lesson about industrial policy and shareholder activism and never try auctions again."

Even consultancies and investment banks were identified as targets of possible legal action.

Nick Burkill, dispute resolution partner at TMT law firm Taylor Joynson Garrett, said that there are avenues where a prosecution in the UK could be possible. He said that under the Human Rights Act, government, auditors and other advisors could be found to have a duty of care and could be sued by shareholders.

The Human Rights Act only entered UK law three months ago so no precedents have been set. Company directors, however, are occasionally sued by shareholders and they routinely hold insurance against this possibility.

The DTI dismissed the report as speculation. A spokesman said: "This was a market process. The levels bid reflect bidders' own valuations of the licences and the opportunities that they see for 3G. The bidders were all sophisticated companies, backed by reputable banks and financial advisers, who went into the auction with their eyes open."

In France, Martin Bouygues, chairman of the Bouygues group which operates one of the three French mobile networks, has already mounted a legal challenge to the French Government's UMTS licence distribution policy.

The French government is using a 'beauty contest' licensing process, rather than an auction. Licences in France are due to be awarded in June, for a relatively cheap fixed fee of FF32.5bn (£3.2bn) per licence, compared to totals of £23bn for the UK and DM98.8bn (£32bn) for the German licences.

Bouygues claimed the process violates EU legislation "which states that any allocation of scarce resources should be done with transparency, pro-competition and in a non-discriminatory fashion".

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