3G operators Mobilcom and Hutchison have been rumored to have problems financing their networks.
Rumors are circulating that two of Europe’s largest prospective 3G mobile operators, Mobilcom and Hutchison 3G, are having trouble raising the necessary cash to build out their networks in the UK and Germany. The news also broke yesterday that Mobilcom’s current debt will last only two years; the firm will have to arrange new financing then. Some believe that this could prove disastrous. In two years time, 3G networks will not yet be working at full capacity or generating substantial revenues.
Pessimistic beliefs about the networks’ long-run prospects are fuelled at least partially by NTT DoCoMo’s admission two weeks ago that 3G networks will not be able to provide full multimedia content at a mass-market price. However, this should not lead to the conclusion that long-term profitability from 3G networks will be low. Whilst Hutchison (in the UK and Germany) and Mobilcom (in Germany alone) have paid substantially for their licenses, they should also be able to derive substantial revenues.
The major potential market for 3G, in any case, was always expected to consist of services that do not require full-speed multimedia video. Location-based services, personal information management, portals, and less bandwidth-hungry sound files and short video trailers are much more suited to mobile delivery – after all, few would choose to watch the latest Hollywood movie on a PDA-size screen, even allowing for the improvements in resolution the next few years will bring.
3G networks, then, should still create serious revenue. Even by 2002, the German 3G market is expected to have more than half a million subscribers, and as ‘early adopters’, the revenue these individuals generate should be high. And by 2005, 3G services are expected to start breaking even.
It is impossible to predict what mood the financial markets will have towards the telecoms sector in two years time. But while the prospects for 3G operators may not be as bright as the summer’s most optimistic expectations, the idea that the future is so uncertain that they will be unable to pay to roll out their networks is unrealistic.
