Mobile Computing

3rd Generation Licence Bids

On 12 January 2000, 9 new companies plus the 4 incumbent players submitted their application to be able to bid for one of the 5 licences to run the 3rd generation high capacity mobile network. One licence will be reserved for a new entrant. In February the government will announce those that have qualified to bid. Bidding will take place in March 1999 and the winners announced in June and they are expected to begin operating the new networks in 2003 though it could take a few years to get national coverage. The Department of Trade and Industry is managing the bids. Licences will go to those who bid the most with the government expecting to raise £1.5bn-£2bn in total. Bidders have placed a refundable deposit of £50m and the eventual winners depositing a £500m reserve, except for the one licence reserved for the new entrant where the reserve is £125m.

The new networks will be based on the world wide UMTS single standard which is based on the IP protocol, the same one that drives the Internet. UMTS system will support high speed data transmission enabling applications such as video phones, fast internet surfing, and functionally rich business transactions. The UK's auction is the 2nd in Europe, following Finland, but it precedes Germany's which is due in May 2000.

The new players are shown in the table below. They consist of not only telecommunications companies but consortiums of media and retail companies. Additionally there will be tie-ups between providers and manufacturers to develop the new handsets and infrastructure systems. With value added services being a key revenue earner, then like the Internet, access to content is critical. Henderson Crosthwaite has estimated the market for UMTS services to be worth £3.6bn a year by 2012.
 

13 Companies to Bid for 3rd Generation Licences

	Name	Owned By	Notes
Existing Operators
	BT Cellnet	BT. It is the UK's 2nd largest player with 7m customers.	Working with Nortel to develop the UMTS system.
	One2One	Deutsche Telekom. One2One is the UK's 4th largest player with 4m customers. Additionally One2One provides the infrastructure for Virgin Mobile, the UK's most recent entrant.	Working with Ericsson to develop the UMTS handsets & systems.
	Orange	Germany's Mannesmann. Orange is the UK's 3rd largest player with 5m customers.	Working with Ascend, Cisco, Fujitsu to develop the UMTS system.
	Vodafone	Vodafone. It is the UK's number 1 operator with 8m customers.	Working with Lucent to develop the UMTS system.
Potential New Operators
	3G (UK)	Eircom, Ireland's national telephone company
	Crescent Wireless	Shareholders in Global Crossing
	Epsilon Tele.Com	Subsidiary of Nomura, a Japanese bank
	NTL Mobile	NTL and France Telecom
	One.Tel Global Wireless	Subsidiary of One.Tel of Australia
	SpectrumCo:	A consortium of Virgin, Marconi, EMI, Tesco, Nextel (US mobile operator), Sonera (Finish mobile operator), and seven private equity funds including George Soros' Quantum Industry fund and Paul Allen's (ex Microsoft founder) Vulcan Ventures fund.
	Tekefonica UK	Subsidiary of Tekefonica, Spain's national telephone company.
	TIW UMTS (UK)	Subsidiary of TIW, a Montreal and Atlanta listed telco which owns the UK Dolphin business to business service.
	WorldCom Wireless	MCI WorldCom
Source for Potential Entrants: Harrison, Michael, 2000, Nine new entrants set to challenge mobile operators in licence auction, The Independent, 13 January 2000

An incumbent could loose

Should one of the existing operators not obtain a licence (and this is forecast to happen), they will be at a severe disadvantage as their customers gradually switch operators in order to embrace value added services. By 2003 voice calls are expected to cost very little so operators will be looking to value added services to generate most of their revenue. However, existing operators do have systems and expertise so it is expected the looser will offer their services to whichever new player(s) wins a licence. Over time, this would reduce the existing player to a provider of infrastructure.

But incumbents have an advantage

It is estimated that the winners will each need to invest between £1.5bn and £2bn to build their network but incumbent players would enjoy the advantage of their existing infrastructure and systems. To offset this advantage, the government wanted existing operators to open up their network to the new entrants so that these companies can build-up their customer base in advance of building their UMTS network. The existing operators protested and One2One took the DTI to the High Court and won, but the DTI has said it will appeal. However, both the 2 major operators, BT Cellnet and Vodafone, agreed in October 1999 to allow new entrants to use their network with Oftel acting as arbitrator if terms and conditions cannot be agreed by the parties. See Controversy.

Risks

Nether-the-less, there could be risks for the new licence players. Currently there are 24m UK mobile subscribers, with 50% of these subscribing in the last 12 months. If this rate continues for another year or so before reaching saturation, then by 2003 (the start of the UMTS system) there could well be 45m UK subscribers - 75% of the population. Just how quickly will these users be prepared to switch to new phones and possibly new contracts when the initial benefits will be marginal? And who will pay for the switch? If customers sign-up with the new entrants in advance, with the ability to use an existing GSM system belonging to an incumbent, will they have to first buy a GSM phone and then later a UMTS phone? Or will the operators give a free swap to an UMTS phone for the new network? Alternatively will they subsidise expensive dual GSM/UMTS phones for a transition period?

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JS

External Resources

1. Harrison, Michael, 2000, Nine new entrants set to challenge mobile operators in licence auction, The Independent, 13 January 2000
2. Larsen, Peter Thal, 1998, Bidders make call on telecoms' future, The Independent, 19 November 1998.
3. McIntosh, Bill, 1999, One2One launches legal challenge to mobile auction, The Independent,
4. Also see the full list of resources for this web site for other related resources.

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