Irrational Exuberance Over 3G?

Bids well north of $7 billion in last month's United Kingdom auction of five UMTS licenses raise concerns that winners will have little capital left for build-out.

The United Kingdom auction is significant because it sets a precedent for future auctions worldwide and because many providers here have interests there.

"You'll find similar ranges paid here," said Andrew Cole, Renaissance Strategy wireless-practice head. "For a nationwide footprint, we're looking at $7 billion to $9 billion for a carrier."

Although that's staggering, winning at any cost appears to be the strategy worldwide.

"Price is almost a side issue," said Jeff Kagan, an independent telecom analyst. "Service providers need to prepare for the marketplace of the future, or they won't be able to compete. No matter what the price of entry is, without entry, they aren'tin the game."

High bids could increase the number of "virtual providers," which buy airtime wholesale and resell it to end-users.

"The carriers are going to want this because they need another brand or two on their networks to pay for the excess capacity," Cole said. "Although the spectrum is very expensive, it's roughly only a third of the total build-out costs. It will help them to have another company that can pay them a good amount per minute or per byte."

Amid the United Kingdom auction, Forrester Research announced, after talking with 46 wireless providers and vendors, that 2007 appeared to be a likely target for true 3G networks to debut. Although that's a marked difference from the 2002 timetable that some vendors forecast, the industry already has seen several 2.5G and 3G trials. Sprint PCS, for example, conducted 1XRTT voice calls in late March and plans data calls next quarter.

"The key here is that we're actually able to begin making calls on 1X, which previously had been just an on-paper standard," said Oliver Valente, Sprint PCS vice president, technology and advanced-systems development. "That's showing progress."

Recent trials include:

• November 1999. United Kingdom provider BT Cellnet makes a GPRS data call, with a laptop downloading Web pages.

• December. United Kingdom provider Orange launches high-speed, circuit-switched data (HSCSD), which promises rates up to 28.8kb/s.

• March 2000. Asian providers M1 and HKT Mobile Services complete a GPRS roaming trial, a sign that subscribers should be able to get the same data services when roaming. Meanwhile, Bell Mobility, Nortel Networks and Samsung team in voice and data trials of 1XRTT, which promises 144kb/s rates and double voice capacity and overall battery life.

• April. Ericsson and Canadian provider Telesystem International Wireless make an EDGE call, whose rate tops at 384kb/s.