Funding famine kicking in for would-be 3G operators
High speed Internet-linked wireless technology promised riches for telecommunications companies willing to buy into the action.
But it worked out differently - they are dodging credit-rating downgrades, suffering a stock price fall-out and shuffling ever-mounting debts.
With hindsight, the fierce bidding for third-generation wireless (3G) licence fees has achieved little more than significantly adding to the industry's business risk.
Not only are most companies heavily indebted, future capital expenditure and increased operating costs for 3G networks are expected to exceed 100 billion euros (about HK$694 billion) in the next 10 years for the European industry alone.
Credit-rating agency Moody's Investor Services is 'sceptical' about the 3G returns within a reasonable time-frame.
'Cash flow generation from investments in 3G is very uncertain, both in terms of amounts and timing. The break-even point is not likely to be reached before the fourth or fifth year of operation in the most optimistic scenario,' it said in its latest telecoms report.
New entrants are particularly at risk of achieving real value and may opt to write off some of their investments and concentrate on markets where they have a more established presence, but this might also extend to the more successful operators once the networks are completed, according to the report.
With bank credit lines all but dried up as the financial institutions refuse further exposure to telecoms debt, and the bonds market over-tapped, with some of the largest multi-tranche issues in corporate history launched this year by Europe's leading telecoms companies, other avenues of financing are being discovered.
Vendor financing has become normal practice for attracting long-term customers, but the telecoms vendors admit financing in the 3G sector has the risk of default by the debt-laden phone companies and involves higher levels of funding.
But some big deals have been arranged. Recently Nokia agreed to bankroll the building of Hutchison Whampoa's British 3G mobile network. It is providing Hutchison 3G UK - a joint venture between Hutchison Whampoa, NTT DoCoMo of Japan and Dutch carrier KPN Mobile - GBP460 million (about HK$5.15 billion) worth of vendor financing.
The Finnish mobile-phone maker is also lending two billion euros to France Telecom's Orange to build its 3G network. Other vendors, including Ericsson, Alcatel, NEC and Siemens, are also financing projects.
The European Union is also willing to dip into its pocket to aid ailing telecom companies. It is said to be considering projects in Britain, Italy and Germany.
