While Hong Kong's telecommunications sector is gripped with speculation about how the third-generation (3G) mobile story will play out, elsewhere in Asia operators are more concerned with how to get people to fork out for the first telephones in their lives. Hong Kong's cellular operators are languishing at lows with the huge price paid for German 3G licences last week renewing fears the costs would be high in the SAR, too. 'In the mobile sector there are concerns about the 3G process,' Dresdner Kleinwort Benson regional telecommunications analyst Eric Tomter said. 'There are concerns about what European companies paid in the UK and Germany for their licences.' SmarTone Telecommunications Holdings was down 1.3 per cent at HK$15.15 yesterday, just off its year to date low of $14.90, while Sunday Communications lost 5.5 per cent to $1.03 after making an initial public offering earlier this year at $3.78 a share. The Office of the Telecommunications Authority (Ofta) has yet to decide how many licences to issue, and how to dish them out. While leaning towards a beauty parade, investors fear when it comes to a decision by November Ofta might announce it was holding an auction. The crowded mobile telephone sector is already weighed down by poor sentiment from a price war which has been waged since April. That has whittled down what little margins operators were able to eke out. Third-generation is expected to provide the spark for the long-awaited consolidation in the sector that would cut competition and improve margins from economies of scale. The oversold sector could rally 'by at least 25 per cent' if news of a deal came through, Mr Tomter said. 'There are some operators that want out of the market and some that are struggling.' There have been rumours of a three-way merger between the three smallest operators: Peoples Telephone, New World Mobility and Sunday. Others have said Sunday could be looking for a heavyweight partner which would take over the business and provide the financial ammunition to develop 3G services. 'We could have a catalyst if Sunday could be bought out at a higher price,' he said. With its respected management, brand name and marketing savvy, Sunday might fetch US$500 million, or HK$1.30 a share, Mr Tomter said. But the hype about 3G might be overplayed, SG Securities' Richard Moe said. He follows the regional telecommunications sector from Thailand, where only 4 per cent of people have mobile telephones. Mobile telephones capable of delivering video as well as voice would be far from everyone's cup of tea and out of the reach of most even in developed markets, Mr Moe said. 'I'm somewhat sceptical about how much 3G can deliver,' Mr Moe said. 'I think it will be prohibitively expensive to sit on a train and watch a movie on a mobile phone. My personal feeling is that is not going to happen. Most people will be happy with voice and simple data services.' Indonesia and the Philippines are still only now awarding GSM1800 licences for second-generation networks. 'In Indonesia and the Philippines, the big story is not 3G,' Mr Moe said. 'It is the opening up of the telephony market to lower echelons of the economy.' That was happening not through cheaper fixed-line telephones but from pre-paid mobile telephone calls made on handsets which were subsidised by the operators, he said. The Philippines has caught on particularly fast to pre-paid calls this year with mobile telephone subscribers zooming from 2.7 million at the end of last year to 4.5 million at the end of June. HSBC Securities telecommunications analyst in London Steve Scruton said doubts about 3G were natural - they had accompanied every other big technological breakthrough. 'It is like moving televisions from black and white to colour. At the time everyone wondered whether it was important but everybody has a colour TV now,' he said.