Broadcast 17th August 2000

We know when we have paid too much for something, but it is not usually by the odd 20 billion euros.

The world's telecom leaders must surely know the feeling now, after they paid 50 billion euros for the right to a third generation mobile phone licence in Germany.

In the end, the six bidders agreed to share the 12 licence blocks equally, that is two each - something they could have done last week when the bidding was little more than half of that 50 billion.

But they did not. They even turned down a suggestion for such a compromise from one of the bidders.

Our reporter Roger White spoke to Christian Marr of brokers Henderson Crosthwaite, and asked him why the companies did not slice this up between them in a cooperative manner last week?



"I think there are a couple of reasons. I think the Vodofone-backed D2 Mannesmann and also T-Mobil which is backed by Deutsche Telecom wanted to go for a larger amount of spectrum and they wanted to get three blocks. But hey have now ended up with two.

"Also, everyone underestimated the strength of the bidders involved, in particular one party called 3G, which is backed by Telefonica of Spain and Senera in Finland. Those two reasons combined to have the event we have had today."

So they were really victims of their own greed, wanting more than they could get, Roger White suggested.

"It was a strategy they outlined before.They wanted to get more spectrum, more band-width, because those two have larger customer bases to protect and serve. But the German market is a market that everyone has wanted to enter and now, ultimately, everyone is going to have the same amount of spectrum. you are now going to have six operators when these next generation services become available. You could argue that the German market is actually going to get more competitive."

You are now going to have six operators when these next generation services become available. You could argue that the German market is actually going to get more competitive. Christian Marr

Roger White asked if the companies were going to be damaged by having to finance that amount of money on top of the other bids they have made, and will have to make, in other European markets?

"Certainly the market is concerned about the level of debt these companies are now assuming. I think what you can say about the German levels, is that on a per-head of population basis, they are actually very similar to the UK.

"The other question is, can any of these companies find money in other ways to fund some of the debt they have. Some of the operators should have some problems over the debt levels, but some like Vodofone, should sleep a little easier."

Would they really be able to justify that kind of money at the end of the day for third generation audio and video data on mobile devices?, asked Roger White.

"I think there is little doubt that Universal Mobile Telecommunications Systems are going to be a real seismic change for mobile customers - and we are not just talking about handsets - there are other wireless devices and we will all have multiple handsets.

"What we can say about mobile, and of course these data services are not yet available, is that every part of mobile’s growth has been underestimated by analysts and industry observers - from the actual take-up of mobile phones, the actual usage patterns, or even just sending text messages to one another.

Industry observers have underestimated demand and I suspect it will be the same with these third generation services. Christian Marr