Telefonica has denied it pulled out of the French 3G awards process due to financial problems.
Spanish incumbent telco Telefonica this weekend denied that it pulled out of the French 3G mobile license awards process due to financial problems. Telefonica has mobile interests in Germany, Italy, Switzerland and Austria as well as Spain, so it was seen as a likely buyer for a $4.6 billion French license. Although the price was high, missing out on coverage in a geographically key market looks risky.
However, there are good reasons behind the strategy. Telefonica has stated that the license cost has effectively been made too high because raising money on the stock or bond markets is more expensive than last year. There is still a possibility that the French government will cut the price to ensure the license is sold. Clearly this would draw accusations of unfair play from the rival operators Orange, SFR/Cegetel and Bouygues Telecom if they are prepared to pay the full amount – but rumors suggest Bouygues will also be reluctant to commit unless the price falls. If these prove true, the government may have its hand forced, allowing the telcos to pick up a license for a price they consider fair.
Even if the awards process does end with three licenses awarded, all will still not be lost for Telefonica. It may have the opportunity to act as a mobile virtual network operator (MVNO) in France, as Virgin does in the UK, renting capacity from one of the three operators. This would allow it to provide a Europe-wide offering without the enormous license and infrastructure costs associated with its own network in France.
Admittedly, in a cozy, three-operator market the license holders might prefer to minimize competition and maximize their profits. Certainly, Orange and SFR have large customer bases and would be reluctant to cannibalize these. However, Bouygues is in a weaker financial situation, does not have existing ties with international mobile giants and has a much smaller market share than its rivals. As such, it might be willing to provide wholesale capacity for Telefonica.
