mmO2 is to announce the write down of the value of its 3G licenses by more than GBP4 billion.
On Wednesday, mobile operator mmO2 is expected to announce that it is writing down the value of the third-generation licenses it acquired in the UK and Germany by more than GBP4 billion ($6.4 billion). The move will make mmO2 one of the first major European mobile operators in Europe to write down its 3G licenses.
mmO2’s 3G licenses carry a book value of about GBP10 billion. However, delays in launching the 3G service mean that the mobile operator will have less time to reap a return on its investment than originally expected. The original projected returns also look wildly optimistic, as wireless data services prove harder to market than expected.
Earlier this year, mmO2 announced that it was delaying rollout of 3G in the UK until 2004. This was in an attempt to cut costs after a ruling from the competition commission on intranet ‘work-call’ charges that will cost the company millions in lost revenues.
At the same time, the former BT subsidiary will take a massive hit from its loss-making Dutch arm, which it sold for just E25 million ($29 million) last month. This twin write down will see mm02’s asset value reduced by a total of around GBP6 billion.
mmO2 now joins a small band of mobile operators that have written down the value of their 3G licenses. Dutch telecoms group KPN caused controversy last year by writing down its holding in greenfield 3G operator 3, controlled by Hutchison Whampoa. Spain’s Telefonica and Sweden’s Sonera have also written off their German 3G operation ‘Quam’ following a withdrawal from the country.
The mmO2 move should be welcomed as a more realistic acceptance of the current state of the 3G market. Other major mobile operators with 3G licenses, such as Vodafone, T-Mobile and Orange, should take note. And while Vodafone’s debt levels are manageable enough to afford a painful write down, the balance sheets of T-Mobile’s parent Deutsche Telekom and Orange’s parent France Telecom could do without the added pressure.
