Market predictions for 3G networks are getting gloomier and gloomier.
Optimism about mobile communications now seems to have reached an all-time low. Following the disastrous French license contest last week, which only attracted two bidders, we now see France Telecom slashing the Orange IPO price and BT trying strategy after strategy to keep its investors satisfied, with limited success.
For a long time, the stock markets were in love with all things mobile. But after the 3G license auctions in Britain and Germany last year, almost overnight, market observers and shareholders got cold feet over the unprecedented investment in licenses and infrastructure. And as WAP failed to take off in a big way, doubts have risen as to whether the market will really lap up GPRS and UMTS/3G. Market observers now predict unanimously that 3G’s start will be delayed, that its development into a mass market will be slower than anticipated and that it will see much lower turnover than mobile operators calculated.
Admittedly, delayed rollout in itself doesn’t herald disaster: GSM was months late nine years ago. The trouble is that the phenomenal debt that mobile operators have had to take on for licenses and infrastructure means that some are paying $100 million each month in interest. Such costs further delay break-even points that in any event lie far in the future. This will increasingly jeopardize the multi-billion dollar credits required for the construction of 3G networks.
Upbeat noises from mobile operators, then, can be primarily attributed to forced optimism in the face of the string of IPOs ahead: France Telecom’s Orange, Deutsche Telekom’s T-Mobile, the Dutch KPN Wireless and BT Wireless all hope to recoup the vast sums spent on 3G licenses this way. But the stock market is all too aware of the risk. The resulting failure to obtain the necessary credit will be the prelude to a tough selection process, during which most of the smaller players will have to sell out to recover at least some of the cost involved in being a 3G player. The likely survivors will be the Vodafones and the Oranges of the mobile world.
