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Wednesday, 13 December, 2000, 19:14 GMT
3G mobile costs slashed?
Four police dogs
The big four have cornered the market in Europe
The introduction of the next generation of mobile phones will be much cheaper than the telecoms companies had predicted, according to Thorsten Grenz, chief financial officer of MobilCom, the German mobile phone firm.

If you make it as a lead supplier in one of these [major] markets, you are one of the big dogs

Thorsten Grenz
MobilCom

This is because their efforts at squeezing their suppliers' margins are proving successful, he told BBC News Online.

Hutchison Whampoa told analysts it will spend £3bn rolling out its third generation - or 3G - mobile phone network in the UK - down from a previous estimate of up to £5bn, according to leaks from the meeting.

MobilCom will invest 1.6bn euros on its German network.

"At first we expected a total of five to six billion euros. We'll save a third of that over 10 years," MobilCom's chairman Gerhard Schmid told the German magazine Telebörse.

Market power

The profit margins that suppliers have been able to slap on top of their prices when selling hardware to the telecoms companies have been dramatically squeezed in the last few months.

A string of mergers and joint ventures between already large telecoms companies has dramatically boosted their purchasing power, according to Mr Grenz.

Of all people; he should know.

Ever since MobilCom signed a deal with France Telecom in March this year, Mr Grenz has seen the prices of its supplies fall.

"If we talk to a supplier, we talk, not only for the German market, but also for Orange in the UK and for France Telecom in France," he said.

The French operator recently acquired the UK mobile phone firm Orange.

Suppliers cut prices

The four main players in Europe - Deutsche Telekom, Vodafone, Telefonica and France Telecom, as well as their partners - are actively using their massive, cross-border market power to force their suppliers to cut prices, he said.

Even giant companies like Ericsson, Nokia and Siemens are left with no choice: They have to go along with the telecom giants' wishes, said Grenz.

If they do, they will make lots of money - not just from the initial roll-out of the infrastructure.

They will rake in the cash for years afterwards, as the systems require maintenance and upgrades, and as the telecoms firms expand into virgin markets.

Hutchison, for one, is preparing for such an onslaught.

On Tuesday, the company revealed that it will spend between 4bn and 5bn euros rolling out its Italian 3G infrastructure, and that it will pursue new 3G opportunities in Hong Kong, Australia and Sweden, according to an analyst who attended a Hutchison meeting.

First choice suppliers

As the networks spread to more countries, demand for 3G communication devices - such as phones and mobile internet gadgets - will rise. Again, this is good news for the suppliers who are desperate to be chosen by the big four.

Thorsten Grenz, chief financial officer
Grenz, the man with the money bag, watching the prices fall
"If you make it as a lead supplier in one of these [major] markets, you are one of the big dogs," said Grenz.

So whereas the suppliers' margins may be squeezed, the volume of business generated from winning contracts should far outweigh this, Grenz said.

The losers

The real losers are the companies that are left out in the cold, excluded from a piece of the pie as the telecom companies' spending spree on 3G mobile technology roars ahead.

This is the suppliers' greatest fear, which is why the competition for the initial 3G infrastructure contracts is so fierce.

"France Telecom don't want a list of suppliers that is too long," said Grenz, suggesting that successful suppliers can expect loyalty from the telecoms companies because they need consistent infrastructure across borders.

For the 3G providers, the lower infrastructure costs are welcome.

Only a week ago, both MobilCom and Hutchison saw their share prices dive following reports - which were denied by both firms - that they were struggling to pull together the financing packages they will need to pay for the 3G party.

Earlier this year, the industry paid £22bn in the UK and 50bn euros in Germany in auctions for 3G licenses.

Since then, the market has lost its confidence, and both shares in these telecoms firms and the prices fetched for telecoms licences have plummeted.


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