German mobile firms fear sky high 3G licence costs

The 3G licence auction in Germany is in full swing with billions of euros already on the table. Who wins in Europe's biggest market has major implications for the global shape of the 3G pecking order

Competition between mobile phone providers is complicated by the high cost of UMTS licences, say telecommunications experts from consultancy firm Mummert und Partner.

According to their analysis, if a very high price is paid for a UMTS licence in Germany, it will make it more difficult for German mobile communications firms to engage in business abroad. Because 3G mobile phone licences will be cheaper to get hold of abroad, international competitors will be able to invest more of the money that they have saved on domestic bids on competing in Germany.

As well as the prices each provider will have to pay for licences (the auction started yesterday and is estimated to close at "20bn deutschmarks" altogether), operators will need to find 5-10bn deutschmarks for network installations. This is likely to mean that standard charges, "despite subsidies, will be between 50 and 80 deutschmarks", says Mummert consultant Andreas Hoffman.

In addition to these costs, the phones themselves have become twice as expensive as today's GSM phones. More exacting technical standards will make the new 3G phones more expensive to produce, at least until volumes ramp up.

Yet another problem for network providers is managing the upgrade path for different types of users: who wants to buy a phone now, when the imminent arrival of UMTS is going to require buying another new one.

Equally, some mobile data services (eg stock trading, shopping and mobile banking) are already available from WAP phones -- so some of the key audiences, such as the corporate user, will need to be persuaded that the additional functionality of things like video-conferencing will make investment in UMTS phones worthwhile for the enterprise.

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