France hands out 3G licences

France might stagger the cost for 3G operators

France has awarded third-generation (3G) mobile phone licences to France Telecom's Orange and Vivendi Universal's SFR.

The decision was widely expected after the contest for four licences turned into a two-horse race ahead of the 31 January bid deadline.

The French Government has also confirmed that it will start a second round of bidding in due course to hand over the remaining two licences.

It has not set a date, only saying the second round would be held "when the time is right".

The announcement follows proposals earlier on Thursday by the French regulator Autorite de Regulation des Telecommunications (ART) to award the remaining licences by the second half of 2002.

ART also suggested staggering payment for the licences, which cost 4.95bn euros (£2.95bn) each, to ease the financial burden on telecoms companies.

The proposals would need to be approved by the government.

Turmoil

France's contest for 3G - or Universal Mobile Telecommunications System (UMTS) - licences fell into disarray in January after several players pulled out.

Bouygues Telecom and Telefonica-backed Suez Lyonnaise both withdrew because they said the licence price was too high.

Dutch KPN, Deutsche Telekom and Hutchison Whampoa had already exited earlier in the process.

Fears of a duopoly

France's 3G contest was different to many others in Europe - Germany, the UK and Italy all opted for auctions - because the government set a specific price for the licences beforehand.

The state is hoping to use the proceeds - initially expected to be 20bn euros - to shore up its state pensions system.

ART's president Jean-Michel Hubert said a second tender would take between nine months and a year.

Prior to the announcement on Thursday, speculation had been mounting that France would abandon the contest in January to avoid creating a duopoly of Orange and SFR.

Staggered payments

The new payment rules, proposed by ART, would mean that the bulk of the licence fee would be paid in six years' time, rather than in the first few years as currently planned.

The move is bound to be welcomed by the telecoms companies which have struggled to service massive debts incurred by paying for licences in other European countries.

UMTS licence auctions in the UK and Germany raised £22.5bn and 51bn euros respectively.

A study by the US consultancy McKinsey has indicated that the introduction of UMTS would lead to losses of 270bn euros across Europe.

Extending the licences

In another concession, ART said the duration of the licences should also be extended from 15 years to 20.

Jean François Pontal, chief executive of Orange, said, "Should other operators successfully bid for licences, we warmly welcome the proposed licence extension and the more favourable schedule of payments for the licence fee."

The new rules - if approved by the government - would apply to first- and second-round winners.

"We want to keep everything fair," said Mr Hubert.

He added that he did not expect 3G services to be operational in France until late 2003, or early 2004 - two years later than initial predictions.

Third-generation mobile phones will support sophisticated online and multimedia applications.

With transmission speeds nearly 40 times the existing standard, 3G will allow mobile phones to be used more like computers, with access to the internet, video and e-mail.