As European telecom companies pant under spectrum’s debt burden and fret over possible third-generation rewards, a market research firm thinks the future is worthy of the torture.
“Mobile operators will share in a mobile voice and data market of $1.5 trillion-with cumulative 3G revenues exceeding capital expenditures by at least 28 percent,” noted Telecompetition Inc. in a study on the revenue streams waiting in 3G’s wings.
The companies, especially in Western Europe, have pledged more than $100 billion for 3G licenses. With their purse strings strained, many of the big telecom companies are rethinking their strategies as they wallow in stock slides of as much as 60 percent, groping for answers.
“3G licenses and infrastructure investments have to be viewed in light of the total opportunity enabled,” said Eileen Healy, chief executive officer and president of Telecompetition Inc. “Our projections clearly indicate that 3G is a necessary network evolution to enable the capacity and speed needed for future traffic, and that’s not factoring in any potential price increases, new technology uses or increased usage once critical mass is achieved. Overall, I suspect that, based on the preliminary data that we’ve analyzed, 3G capital expenditures will be paid back within seven or eight years.”
The research firm says the overall cost of licenses to date is 10 times below the worldwide cumulative mobile data revenue of $1.7 trillion.
The firm also says that operator’s share of mobile data revenues will exceed $470 billion in Western Europe’s leading edge market, with 3G covering half of the services. It regards as premature industry conclusions that the mass market may not love 3G services, blaming such views on early end-user surveys “showing lukewarm interest in mobile data services, not considering the natural uncertainty users have when questioned about unfamiliar technology and services they never used.”
Telecompetition says the higher market entry costs can always be expected in the more attractive markets like Western Europe, which makes 3G acquisition an opportunity for sustained market share.
Third-generation technology, which provides access to Internet, multimedia-enhanced voice, multimedia messaging, location-based services and other new data services, may thrive on the failure of earlier technologies to cope with the volume of users.
“Ultimately, 3G will be required as a network traffic facilitator to provide the required capacity as well as enable new multimedia applications,” the firm said.
For all the streak of light the report provides, market research firm Morgan Stanley expects the telecom companies to pay an extra $100 billion before the license auctions come to a close.
Some of the major companies wallowing in debts and quandaries about the future include Germany’s Deutsche Telecom AG, Dutch company KPN, British Telecommunications plc, Vodafone plc, Telefonica SA of Spain, France Telecom SA and Sweden’s Telia AB.
KPN, which paid $7.5 billion for licenses, slashed its work force by 8,000 and its shares dropped nearly 88 percent. Deutsche Telecom has disbursed $13.6 billion for licenses and has suffered a debt burden of $48.5 billion in the past year, its stock plummeting about 70 percent.
BT’s debt has worsened by $28 billion in the past year with its share price dipping by 67 percent.
Western Europe has been credited with a rosy vision of mobile communications earlier than the United States, with its citizens keying into the prospects and glories of multimedia.
The telecom carriers took advantage of this as the new frontier with huge investments until recently when it became clear that multimedia services would cost more and take longer to dawn.
