Mobile operator Orange has announced that it is to withdraw from the Swedish mobile market, blaming market conditions and regulatory pressure stemming from its UMTS licensing requirements. All 234 of the operator’s staff face redundancy if a ‘white knight’ suitor can not be found to acquire the whole of its operations, including a UMTS licence. In the current economic climate, and given that Sweden is effectively a saturated market for mobile services, offering little potential for gaining market share, this seems unlikely. There have already been several high profile business failures amongst operators holding only UMTS licences, including Xfera of Spain, Portugal’s Oni Way and Quam in Germany. Without the safety net of an existing subscriber base through GSM operations, UMTS rollout is being perceived as a risky investment.
Sweden’s 3G licences were awarded via beauty contest in December 2000. Each licence cost a nominal fee of just SEK100,000 (USD10,700), as well as a 0.15% cut of the operators’ annual revenue to go to the Swedish treasury. The up-front payment equated to approximately half a US cent per head of population for the total auction, compared to USD591 and USD567 per capita in the UK and Germany respectively. The reason for the low price of the licences was that their conditions are amongst the most stringent in the world; operators are required to cover 99.98% of the Swedish population by the end of 2004. In October 2002 Orange’s appeal for a relaxation in the terms of its 3G licence was rejected by the Post and Telecom Agency (PTS), Sweden’s regulator. The request, lodged in August, was for an additional three years to roll out the network and a reduction in the coverage requirements, which are almost certainly greater than in any other market.
Given the huge price variation between the Swedish licences and those in other European countries, it seems surprising that Sweden should see such a spectacular vote of no confidence. Having paid so little for their licences, common sense would dictate that operators would have more money available for network rollout. However, the truth is that operators make their decisions based on a global strategy: the companies holding licences in Sweden also paid billions for concessions in other markets. Having overstretched themselves to gain a regional footprint in Europe, operators such as Vodafone and Orange do not have the funds to meet their licensing requirements. The PTS’ decision to charge only USD100,000 per licence, forgoing the huge sums raised in the earlier auctions in the UK and Germany, was clearly made in the interest of the telecoms industry in Sweden, working on the assumption that operators would be prepared to roll services out quickly on the back of low licence fees. The huge fees paid for German and UK licences, however, has stripped the licence holders of the ability to fulfill their Swedish obligations. The international nature of telecoms has meant that the inconsistent approach adopted at the UMTS auctions was bound to cause trouble. One of the prime tenets of the EU is ‘subsidiarity’, the principle that governmental decisions within the union should be taken at the appropriate regional, national or supra-national level. As proved by the problems witnessed here, the decision on the method to be adopted in 3G auctions should surely have been made at the EU level, if not higher.