The European Commission is assessing whether the EIB could help finance 3G network rollout.
In the business world, bad financial planning normally gets punished. At best companies suffer at the hands of their competitors; at worst they go bankrupt. It therefore seems surprising the European Investment Bank should have to bail out the mobile operators. Operators knew how much they were spending – but they seriously miscalculated off the back of flawed and over-optimistic business models.
The doubts voiced about the true value of 3G licenses – particularly the extravagantly priced UK and German auctions – have only compounded the issue. Telecoms stocks have plummeted and operators are now unable to raise the capital they need to build 3G networks on the market.
Perhaps the operators deserve to collapse, but already their problems are creating large enough ripples to concern the European Commission. Quarterly sales for many of the network and wireless equipment suppliers are down and the poor performance of the tech markets are only exacerbated by the delicate situation.
No one doubts that there will ultimately be a return on investment, yet it may take as long as 10 years to be realized. But 3G cannot even start to generate revenues until the networks are built.
A cash injection is therefore desperately needed. Vendor financing is one option and Nokia, NEC and Siemens have already announced that they will lend up to $1.1 billion to fund Hutchison’s new UK network. Other firms may well be doing the same, but if equipment sales are low, vendors may prefer to keep the revenues for themselves. Investment banks, on the other hand, are more reluctant to provide any more loans; operators have poor credit ratings and a downturn in the global economy is on the horizon.
The situation is serious, so why shouldn’t the European Investment Bank get involved? After all, although the operators misjudged the 3G market, the Commission did little to regulate the auctions and possibly prevent the current situation. Although intervention by the EIB is not ideal, it will certainly help to make 3G succeed. The Commission should recognize the part it has – or hasn’t – played and let the EIB remedy the mistake.
