BERLIN -- Contrary to popular stereotypes, Italians do not do everything more passionately than their traditionally more staid German and British neighbors.
Perhaps it's merely the exception confirming the rule, but the beginning of the auction for Italian third-generation mobile-phone licenses last week was a rather tepid affair compared to the bidding in Germany and the U.K. earlier this year.
Whereas the U.K. auction brought in $32 billion and German bidding nearly topped $50 billion, the Italian auction is expected to garner only around $25 billion for Rome's government coffers. To be fair, that's partly due to the Italians' passion for their mobile phones, which means there is less room for cellular operators to grow in Italy's mature market. Six bidders are vying for five licenses, with the country's four incumbent operators expected to be successful, along with one of two new entrants.
Although Italy is one of Europe's big four markets, it has been a less attractive place for new investment because nearly 90% of cell-phone users belong to either
Telecom Italia Mobile
. Still, the auction is sure to pique investors' interest on both sides of the Atlantic in the coming week as telcos' costs for Europe's third-generation UMTS, or universal mobile telecommunications system, are once again brought to the fore.
( BTY) and Spain's
will face intense investor scrutiny should the bidding creep higher than is expected. The shares of both telcos took their lumps after the German UMTS auction this summer, when British Telecom took over majority control -- and accordingly more of the license cost -- of local operator
and Telefonica unexpectedly won a pricey license along with Finnish partner
That led some shareholders to question whether the massive costs for both licenses and expensive UMTS networks could ever be recouped. Many of the major European telcos find themselves up to their eyeballs in debt for third-generation outlays. However, investors have been just as unkind to companies apparently failing to build a pan-European UMTS footprint, such as
Although BT has no desire to leverage itself any further at the moment, its UMTS bidding partners are angling for the British to take majority control of their wireless
consortium as it did in Germany. Telefonica, which now appears bent on becoming a Europe-wide operator regardless of cost, is favored to win a license along with its
consortium over the other newcomer,
Andala is thought to have a lower pain threshold, since it is backed by
, which unceremoniously dropped its plans to operate a UMTS network in Germany due to what it considered excessive costs. "Given their track-record in the auctions to date it does not appear that Hutchison Whampoa are fully committed to building a European 3G presence," according to a recent research note by
. While that might be good for Telefonica's strategic plans, it is sure to gouge its balance sheet too, as it faces building another national network from scratch.
As the bids continue to climb next week, the shares of bidders could be pressured lower, but some investors remain sanguine about the extended outlook for the sector. "The last negative factor is the UMTS licensing process in Italy," says Robert Halver, an equity strategist for
Delbrueck Asset Management
in Frankfurt. Barring an auction gone haywire, "The long-term prospects for telecommunications companies will
better reflected in the share prices," he says.
So the fundamental lay of the land should keep the Italian auction from getting overly dramatic next week. But even if license prices avoid the nosebleed levels of previous auctions, there should be plenty of action to arouse investors' passions.