The French government will levy a 1% tax on 3G mobile operators’ revenues.
The French government has decided to levy a tax of just 1% on 3G mobile operators’ revenues, as well as setting the second-round license payment fee at E619 million. The tax, which replaces most of the upfront license fee the government had originally planned, was expected to be somewhere between 1% and 2%.
It’s good news for the two current 3G license holders, France Telecom’s Orange and Vivendi’s SFR. Rather than having to pay E4.95 billion (half of it upfront, before their networks even bring in revenue), this E619 million will be their final upfront payment. And a levy of 1% of revenues will not make a huge dent in profits, given that operators aim to operate on margins of 20-30%.
It’s also good news for French people in remote areas, since Orange and SFR have also agreed to spend E500 million each in extending their GSM networks to improve rural coverage. This spending, much of which was planned anyway, seems well worthwhile to secure the government concession.
However, it’s less clear that the move will achieve the government’s major aim of finding bidders for the other two 3G licenses. One problem is the unclear strategy of France’s third and smallest mobile operator, Bouygues Telecom. The company said at the time of the initial 3G auction that the price was too high, but has said little since the price was cut. Bouygues would probably benefit from buying a license, but it may have difficulty raising the funds, given majority owner Martin Bouygues’ reluctance to dilute his controlling stake.
Finding a new entrant to buy the fourth license, meanwhile, could prove impossible. Many view new entrant 3G licenses as worthless, considering the amount of time it will take before new entrant operators will see any return on their investment. Even though this is an exaggerated view, it is prevalent enough to deter expansion. Mobile operators would find it extremely hard to justify bidding for a French license as a new entrant to their shareholders, even at the reduced price.
