French 3G concessions fail to cut the mustard

NEWS A drastic reduction by the French government in the cost of 3G licences from E4.5bn (£3.1bn) to E619m (£388m) has failed to appease Bouygues Telecom. Bouygues dropped out of the 3G beauty contest at the end of January 2001. At the time it said the "conditions of the call for bids is not persuasive" and added that "acquiring a UMTS licence would require an unreasonable financial risk". Bouygues said today's stepdown was an admission by the French government that it had grossly underestimated the cost of building 3G network infrastructure. The telco said the move puts the government back on track to fulfill EU directives on the number of licenses to be awarded, and takes into account the "technical and commercial uncertainties of UMTS". But Lars Godell, European telecoms analyst at Forrester Research, said: "This price cut doesn't solve the underlying problem for UMTS. It has no business case to justify the spend on the licences and the E100bn (£60bn) to E180bn (£112bn) spend on network investments." Godell added: "It costs 15 times as much to upgrade a network from GPRS to UMTS compared to upgrading from GSM to GPRS. Operators have to realise their operating profits will disappear because of 3G in 2007 and will not return until 2013." The French government has also been considering a deferment of payment for the two companies that bought licences in the first place, France Telecom and Vivendi, until the end of 2002. However, Godell rubbished the idea. "The value of paying at the end of next year rather than now is not significant and the business case for UMTS will not dramatically change to justify that spend either," he said. Bouygues has not yet decided whether it will submit a new bid.