Telefónica explains 3G stance in France and Brazil

date: 29th January 2001, source: ft.com

Spain's Telefónica has rejected suggestions that strained corporate coffers could be the reason for its recent decision not to participate in tenders for mobile telephone licences in France and Brazil.

The Spanish telecoms group instead pointed to negative market sentiment towards third-generation (3G) mobile telephony, high prices for licences as well as alternative growth opportunities.

"The markets have been telling us in recent months that they see more uncertainty in UMTS [3G] projects than they did 5 months ago," said Cesar Alierta, president of Telefónica. "We have to transfer the market-dictated risk premium caused by that uncertainty to all projects."

A consortium led by Suez Lyonnais des Eaux and Telefónica last week dropped out of the bidding process in France, leaving only 3 remaining competitors to bid for four licences, which each cost FFr32.5bn ($4.6bn).

"In the current market conditions, maintaining such a high price seemed to us out of proportion when others have been lowering their prices," said Luis Lada, president of Telefónica's mobile telephone division. "That is our assessment. The French government can do what it wants."

Telefónica also said it would not bid for licences the Brazilian government is hoping to tender in coming days.

Falling short of labelling the licences as over-priced, Mr Alierta said that its recently announced merger of mobile phone assets in Brazil with Portugal Telecom assured more "profitable growth" in what the company considered one of the world's most important mobile phone markets.

Yet Telefónica insisted its abstention from bidding was not a result of heavy expenditures for mobile phone licences in Europe. "Our financial situation is among the best world-wide and the rating agencies have acknowledged that," Mr Alierta said.

Rating agencies late last year warned that telecommunications companies, including Telefónica, could face a ratings cut if they did not reduce their debt.

Mr Alierta defended the E4bn ($3.8bn) it paid for a UMTS licence in Germany, saying it was a larger market than France with more growth potential. Demographics and topography also "make France very expensive," he said.

Telefónica played down concerns it would lose the opportunity to establish a footprint for its network in France to complement its presence in Germany, Italy, Switzerland and Austria. "We don't rule out being in France," said Mr Lada, "there will be many other opportunities. This is not the end of the story."

Mr Alierta suggested Telefónica could reconsider if the French government were to lower the price of its licences. "Of course we would participate if it were E1bn not E5bn," he said.

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