The troubled telco’s Blu consortium has pulled out of Italy’s 3G spectrum auctions.
The Italian mobile auctions were an important test for BT. Its share price has halved in the last eight months, and there have been calls for the sacking of high profile board members. The company’s strategy had previously been to expand on the cheap, by taking minority stakes in telcos around the world. This was fine a year ago but now the industry is consolidating. Italy was a major test of whether BT would prove to be a shark or a small fish in the mobile telecoms pond.
BT’s Italian mobile strategy via the Blu consortium was not bad in itself. But its partners are not experienced telecoms operators, and they were frightened about the huge cash outlays in getting a 3G license. They wanted the security of a trusted international operator to take on the dominant role, asking BT to grow its stake from 21% to 51%.
But this created a terrible dilemma for BT. Not to contest auctions, especially in a huge market like Italy, sends out bad signals to shareholders, implying that BT is in trouble and lacks ambition. Indeed, it successfully bought out its partners in a similar situation with Germany’s Viag Interkom. But this time its credit rating was too low to afford to increase its Blu stake. The other companies also refused to put up the money to contest the auction. Blu had to withdraw from the race, leaving BT’s Italian strategy in tatters.
To be fair to BT, the situation was never ideal. Its partners in Blu don’t have obvious synergies with the telecoms business, and the consortium has not done well so far in penetrating the Italian market, which is 91% dominated by Telecom Italia and Omnitel. Nonetheless, most will view the company as having failed a key test. When, as is expected in the next few months, the company floats its mobile telecoms division, it will look more like prey than predator.
While the Italian government laments BT’s withdrawal, which has left the total cost of licenses at $10 billion – around half its expected figure – the other bidders will benefit strongly. The other three incumbents – Vodafone and Verizon’s Omnitel alliance, France Telecom and Enel’s Wind alliance, and Telecom Italia – should secure cut-price licenses, as should the newly-entering Hutchison-led Andala and the Telefonica-led Ipse groups. This will leave them in a position to strengthen their dominance over BT in the global mobile telecoms market.
