Word: telecoms
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Michel Bon, chairman of France Telecom, is chatting by cell phone about 3G, a wireless technology on which he has wagered his career and his business. Suddenly, his voice starts to fade and become unclear. Then he disconnects completely. "I'm sorry," Bon says in his French-inflected English when he rings back a minute later. "My mobile, despite it is an Orange, I can say is not always perfect." France Telecom, of course, owns the lion's share of Orange...
...want to understand why the European telecom industry is throwing more than $230 billion into upgrading to 3G - shorthand for third generation - look no further than Bon's occasionally dodgy telephone. (Not that the handsets linked up to BT Cellnet or Vodafone are any better.) Though mobiles have come a long way since the days when Gordon Gekko stood on the beach talking to a brick, you still wouldn't make a call on one if a landline was available. And if voice services are skimming the edge of adequacy, that's still more than anyone could...
...telecom operators and their investors, on the other hand, it looks more like a financial disaster. Bon's France Telecom has increased its debt to a staggering $55 billion in large part to pay for 3G. Likewise, Deutsche Telekom now owes $50 billion, and British Telecom $43 billion. (It's not all 3G; these firms have also been on acquisition sprees.) And here's the scariest part: there's no guarantee that 3G will...
...telecom industry get itself into this mess? The birth of UMTS just happened to coincide with the peak of the speculative rage for technology investments. In March 2000, the Spanish government sold some of the first UMTS spectrum licenses to four firms for a total of about $450 million, or roughly $12 for every Spaniard. "The market capitalizations of the companies that got these [licenses] rose by more than they paid for them," says Falk Müller-Veerse, European research manager for the investment group Durlacher. "So everyone said, 'We have to get these.'" Put another way, the stock...
...well, the sky. Last year the U.K. and Germany won $32 billion and $45 billion respectively, sums that amount to almost $550 per capita. In total, European governments are likely to rake in $108 billion from the sale of UMTS licenses, according to Durlacher research. In hindsight, the telecom operators overpaid, since these days some UMTS airspace is tough to give away. Last month, Belgium found only three bidders for its four licenses...