3G operators will wait 15 years to recoup 3G costs

And they won't be able to recoup costs from consumers say analysts

It will take up to 15 years for mobile network providers to recoup the cost of their third-generation (3G) licences a report released this month says.

The government-run auction netted the treasury a cool £22.5bn with Vodafone shelling out £5.96bn and BT Cellnet, One2One, Orange and TIW also winning licences costing between £4bn and £4.36bn. The report -- from investment bank JP Morgan and Arthur Andersen -- believes that new entrants to the 3G market, such as Canadian-owned TIW, face the biggest challenge in breaking even.

The investment bank report ranks some of Europe's leading mobile operators in terms of their probability to succeed in the 3G arena. Finnish firm Sonera is identified as the clear leader, followed closely by UK's BT Cellnet, Orange and Vodaphone. One2One, though, is not tipped for success.

According to Declan Lonergan, analyst at research firm the Yankee Group this may be down to One2One's parent company. "One2One may not have been highly rated in this report because they're owned by Deutsche Telekom who haven't been at the forefront in terms of pushing data services," explained Lonergan. He predicted that the companies still have everything to play for. "It's too early to say which companies are going to succeed, as they all have an equal chance", he said, adding "3G changes the mobile landscape".

It is not the first time concerns have been raised over the high prices paid for 3G licences, which will allow mobile phone operators to run high-speed Internet services such as video conferencing. In April, research firm Ovum warned operators could be crippled by the debt and forced to pass costs on to consumers.

Lonergan takes an opposite view -- that consumers may ultimately benefit from the high price paid for licenses. "The fact that companies paid so much for licences means they need a large take-up of 3G. If a consumer market doesn't happen then these companies can't survive," he said.

The 3G standard being rolled out in Europe is UMTS (Universal Mobile Telecommunications System), and networks should be built in most countries by the first half of 2002. Lonergan believes that UMTS coverage will be initially restricted to urban areas. "The rollout of GPRS by BT Cellnet shows that companies will initially target the business user. However, I expect that after six to 12 months 3G will be priced at a consumer price level."

The investment bank report ranks some of Europe's leading mobile operators in terms of their probability to succeed in the wireless data arena. Finnish firm Sonera is identified as the clear leader. There is then a chasing pack including the UK's BT Cellnet, Orange and Vodaphone, but excluding One2One.

Take me to the ZDNet Road to 3G News Special.

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