The mobile operator has launched a lawsuit aiming to annul the German 3G auctions.
In August, the telecoms firm part-owned by France Telecom agreed to pay $7.6 billion for its UMTS license in Germany, claiming it would make a return on its investment within five years. This was always questionable. The company is a greenfield operator in terms of networks, although it currently operates a branded mobile service by licensing other carriers’ spectrum. It will need to gain market share quickly, especially since as a new operator there will be additional costs in network build-out. This may be unrealistic in a market forecast to have over 60% mobile penetration by the second half of 2002, when services come online.
Following the party of the auction, MobilCom is now experiencing the morning-after feeling. It now seems to agree with this gloomy outlook. It will try to reduce its costs by getting the auction system used in Germany overturned. Its argument is that EU law says that the bidding process for such contracts should be uniform. But whilst Britain, Germany and Italy have all had auctions, other countries, including Finland and Portugal, have had ‘beauty contests’ where licenses were awarded to the company which could demonstrate the best proposition.
Will MobilCom win? It’s possible, but unlikely. The other five operators in the auction have ruled out legal action, since they do not believe they have a case. And it is by no means clear that any breach of EU law has taken place. In any event, the case is expected to take five years and cost up to $700 million – this could be a risky strategy for a company that should be concentrating on network build-out and gaining market share.
The reason why MobilCom has changed its mind about the process seems simply to be that it no longer expects its revenues to cover costs. A few months ago, high prices seemed palatable for UMTS licenses – they would bring in huge revenues for their holders, as consumers switched to mobile Internet services for almost everything. A more considered outlook is now prevailing; the low uptake of WAP has cast doubt on the future of mobile internet. Between them, the German phone companies have agreed to pay almost $569 per head of population in license costs alone. No wonder MobilCom is getting cold feet.
