BERLIN -- Ever since the U.K. auction for third-generation mobile-phone licenses last spring brought in a whopping $35 billion, European telecom operators have been looking for ways to partner up and pool their resources to fund the massive costs.
But alliances may be harder to craft than originally thought because of regulatory concerns and conditions attached to wireless licenses. This in turn could give non-European companies that did not participate in auctions an easier entry to some European wireless deals.
Partnerships may become a necessity: Besides the pricey licenses themselves, telcos such as
will be required to fork out billions to build UMTS, or Universal Mobile Telecommunications System, networks. These new systems will bring Europe's mobile-phone users a profusion of slick multimedia applications in the next couple of years.
The large price tag for German, third-generation licenses -- that auction garnered $50 billion earlier this month -- left most European telcos battered and even a couple looking downright vulnerable to takeovers by bigger rivals, as investors scurried for cover. In particular Finland's
appear cash-strapped and ripe for the picking, as their 3G consortium was not actually expected to win a German license. That it did raised concerns about whether the two companies can afford to build a new UMTS network from scratch without outside help in Europe's largest potential market.
However, even with a legion of investment bankers salivating over the potential mergers and acquisitions action UMTS will bring to the Continent, there are more than a few sticky regulatory hurdles to overcome. Since many of the countries have rules barring the sale of a license or the possession of more than one license, possible takeovers and mergers will be complicated and convoluted affairs. That, in turn, could give the bankers even more reason to slobber, as potential side deals are created.
Shortly after the German third-generation auction ended and Sonera supposedly came out a winner,
announced it saw the company as a potential acquisition target at some point down the road. That, however, would present a red flag to German regulators, since France Telecom holds nearly 30% of
, which also successfully obtained a license for the German UMTS spectrum. And it wouldn't be as easy as selling off Sonera's stake of the 3G license to the highest bidder, were the French to swallow the company.
"It's not possible to sell a license and neither can a company have two licenses," says Rudolf Boll, spokesman for the German telecommunications regulator, which oversaw the auction. "One possibility could be to shift ownership within a specific bidding consortium. However, we would certainly have to OK something like that."
That means the easiest solution for France Telecom or any other expansionist telco interested in Sonera would be to broker a deal with Telefonica, hoping the Spanish would be interested in buying out its Finnish 3G partners. That, of course, is assuming Telefonica could afford or want to do such a thing.
Telefonica could just as easily become pickings for another telecom predator such as
, or it could try to revive its aborted merger with the Netherland's
. Again however, there would be regulatory problems, since both BT and KPN also have German UMTS licenses via their respective local units
That means the easiest fit for Telefonica, Sonera or any other European UMTS operator looking for a partner would be to look overseas. KPN has already cozied up to Japan's
, but U.S. companies such as
, which dropped out of the German auction before it began, could get a second shot at the European market.
"If anyone is interested in buying Sonera for simply the German license it would probably be a non-European because many of the big telecoms are already represented there -- perhaps a U.S. firm could come in," says Matthew Lewis, an analyst for
Daiwa SBCM Europe
. "That would certainly avoid any regulatory issues."
And although some analysts say an acquisition of Sonera would be a bit too pricey, and it would be better to let the dust settle from the current UMTS license allotments, the tiny operator might just be too tempting to pass up. It already has licenses in Spain and Germany and is bidding again with Telefonica in Italy and possibly even France. That's a third-generation footprint Deutsche Telekom can only dream off at the moment.
Should the Finns actually manage to get Italian and French licenses, their finances would probably demand they look for a partner with deep pockets. DT would certainly fit that bill -- its soon-to-be partner
announced its intention Monday to buy
for about $6 billion in stock. This will advance Voicestream's position in the U.S. -- and the desire of Deutsche Telekom's CEO Ron Sommer to become a pan-European, third-generation player will probably sanction getting a slew of expensive lawyers to try to overcome any regulatory concerns.
Whether they'll have more work than the legion of investment bankers trying to cut a deal is anybody's guess.