Bank of England warns on burden of backing telcos

NEWS The warning follows hot on the heels of a caveat from the Financial Services Authority about the exposure of financial companies, particularly banks, to the $410bn borrowed last year by telcos to pay for 3G licences and for upgrading and rolling out networks. The Bank's six-monthly Financial Stability Review said: "Regulators internationally should be giving particular attention to any banks with clustering of large exposures to companies in this sector." It is particularly concerned that much of the borrowing is in the form of short term loans or bonds and calculates that about $250bn is due for repayment next year. The report added: "One risk is that the income generated from the new technology may be lower than expected and insufficient to service the borrowing. There are also risks that the handset technology may take longer than expected to develop and that the 3G technology may become obsolete more rapidly than anticipated." But the Bank concluded that there was 'clearly also a significant potential upside.' The auction of wireless spectrum for 3G licences early this year produced a bonanza for the UK and German governments. But since then, auctions in other countries have been absolute flops or have produced far less money than anticipated. The current auction in the US looks unlikely to hit the once-widely-touted figure of $18bn and, indeed, will be lucky to make half of that.