3G implosions 'inevitable'

date: 17th January 2001, source: theaustralian.com.au

The mobile phone industry will be hit by "major operator business failure and massive industry consolidation", one of the world's leading research houses has warned.

A survey of European mobile phone operators from Forrester Research said the 104 billion euros ($177 billion) spent on third generation mobile phone licences last year would lead to intense competition and "business failure is inevitable for most operators".

Third generation, or Universal Mobile Telecommunications Service, offers internet services over mobile phones and other hand-held devices, which up until the middle of last year were seen as a huge new revenue stream for mobile phone companies.

But after a survey of European telcos, Forrester said: "UMTS will be remembered as the trigger that imploded Europe's mobile industry. We expect that consolidation will leave only five groups serving all mobile users by 2008."

The outlook for Europe has implications for the Australian industry, given Europe's players set the trend for the mobile phone industry.

And grim profit forecasts come as companies like Sydney-based One.Tel builds its European presence. One.Tel fell to a record low yesterday of 35c before closing at 37c, down 4c on the day.

It also comes as Cable & Wireless Optus looks to auction its assets, including its $11 billion-plus mobile phone business. But with the industry fretting over capital expenditure and losses over 3G development, analysts are bearish about the number of players C&W Optus and its parent London-based Cable & Wireless Plc can attract to ensure the best price for the business.

One.Tel withdrew from bidding for 3G licences when the costs soared in Europe and Forrester said the shake-out in operators could provide more opportunities for mobile virtual network operators which resell operators' services.

One.Tel signed an MVNO agreement with KPN of The Netherlands last November but, even so, the Forrester report is bearish in the profit outlook for the entire industry.

While it predicted a fast take-up of internet services on mobile phones, the revenues would fall well short of forecasts.

And the rise of the MVNOs also meant that increased competition would severely erode average revenues per user and profits would disappear.

"We made a conservative revenue estimate and found that operating profit begins to shrink in 2003, turns negative in 2007 and only recovers in 2013," Forrester said.

Customers would also regularly switch to other operators and that meant telco companies faced high marketing costs to try to retain customers.

"The grim profit prospects for the average European operator will turn the European mobile market into a bloody battleground. Nearly all players will be hit," the report said.

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