Austria’s 3G mobile auction will start tomorrow.
The Austrian 3G mobile license auction kicks off tomorrow. There are six bidders, bidding for up to six licenses. The way the auction is structured, each company has to bid for at least two blocks of spectrum out of the 12 available; no company is allowed more than three blocks. In a market with four incumbents who are certain to buy at least two blocks each, the ultimate price and outcome will be determined by how much the new challengers are willing to pay, and how much the incumbents are willing to pay to limit the number of UMTS players.
The incumbents are all controlled or backed by mobile giants; Mobilkom by Telecom Italia; Maxmobil by Deutsche Telecom; One by France Telecom, and Tele.Ring by Vodafone. Hutchison and Telefonica are the two new bidders. So if any of the bidders back out, it will be a strategic decision based on value for money grounds, rather than on cashflow.
It seems unlikely that both new entrants will go empty-handed. Although Austria has high penetration rates of around 70%, this will be the case in all major European markets by 2003, and the evidence is that people are quite willing to switch providers if they see a benefit. Since 3G services will be based around mobile Internet applications, there will be a lot more scope for product differentiation – as well as skilful marketing, which Hutchison certainly has experience of, having created Orange. So the challengers will be unlikely to drop out while bidding is low – and it is unlikely that competition amongst incumbents for a third block will drive bidding very high in a five-way race.
But at the same time, the companies will be unwilling to drag the bidding up to particularly high levels given the relative insignificance of the Austrian market, when Hutchison and Telefonica have both already built substantial 3G interests in Europe. Hutchison has operations in the UK, Italy and Spain, and Telefonica in Spain, Italy and Germany – so they’ve already committed large sums to building operations outside Austria.
The most likely outcome, then, is that either Hutchison or Telefonica wins a license, at a moderate price (certainly no more than the Italian level of $210 per head of population). Lower license fees will allow the five operators to make a better return on their investments than in the major European markets, possibly allowing the technology to grow faster and cheaper. After all, the operators will still have to pay an expected $1-1.5 billion each to actually build their networks.
