Collusion In French 3G Debacle?

date: 26th January 2001, source: www.forrester.com

This week's withdrawal of two of the four potential players in the French government's third generation (3G) wireless service license stakes will almost certainly force the license prices to be halved, Forrester Research said.

Both the Suez Lyonnaise/Telefonica consortium and the Bouygues Telecom group formally withdrew from the bidding plans over the last few days, officially leaving just France Telecom's Orange and Vivendi's SFR operation in the running.

The French government had been planning to scoop up $19 billion from the sale of its 3G licenses, but Forrester said the government will probably have to halve the license fees to attract them back in.

Matthew Nordan, the firm's research director, said that the French bureaucrats had struggled to find applicants for the four 3G licenses, forcing French bureaucrats to banging on Asian doors over the past few months to scare up demand.

"One week before the end of the process, with only four interested parties, the allocation has broken down," he said, adding that even now, Vivendi-held SFR is wavering.

"This leaves only France Telecom as a fully committed applicant," he said, adding that the problems appear to have been caused by operators' optimistic plans diminishing and the high prices charged for the licenses.

"The giddy optimism that reigned in the UK this April disappeared this year as subscriber numbers saturated, WAP sites disappointed, and 3G handsets were delayed," he said.

Against this backdrop, Forrester says that the French blowout comes as no surprise in light of 3G's grim economics.

As a result, the firm predicts that the total costs of deploying 3G will cause average operating profit for mobile operators in Europe to decrease in 2003, turn negative in 2007, and not recover until 2013.

The 495 billion euros ($4.8 billion) per license was also set too high, the research firm said, since this results in a price tag of 335 euros ($310) per potential user - way higher than most other European countries, with the exception of the UK and Germany.

French lawmakers are now in a bind, Forrester said, as the government has already designated its 3G license funds to feed pension coffers and ease the deficit burden, so it must meet these commitments.

Because of this, the French government must cut its license costs in half, and ART, the French telecommunications regulator, must lobby the government for this to happen.

If this does not happen, then collusion between the players on service pricing to end users is the probable result, which is bad news for consumers.

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