Is there no good news?

Citation

Blackman, C. (2002), "Is there no good news?", info, Vol. 4 No. 4. https://doi.org/10.1108/info.2002.27204daa.001

Is there no good news?

Is there no good news?

The stream of bad news emanating from the telecoms and media sector continues, with companies such as Alcatel still struggling and KPNQuest failing. WorldCom filed for the biggest corporate bankruptcy in history in July after it admitted it had hidden nearly $4 billion in costs to inflate profits. Lest we forget, WorldCom was valued at over $100 billion, is the second biggest US telecommunications provider and handles more than half of the world's Internet traffic. The company reached that position through the acquisition of over 75 businesses funded by colossal borrowings – a questionable strategy when the telecoms market was soaring but a disastrous one in times of market decline.

There are, of course, big questions to be asked about accounting practices and fraud – in general and in the USA in particular – and corporate greed. For the telecoms sector, there are also questions for policy makers and regulators about their role at a time when the markets are dictating massive restructuring. For instance, how will we feel if, at the end of this restructuring process, the markets have killed off new market entrants and the incumbents are the only ones left standing? Is that what we meant by a competitive market?

Are there lessons for the development of third-generation mobile markets? Many are clinging to the hope that the roll-out of third-generation mobile networks will continue the mobile success story of the 1990s and give the sector a much needed boost. For instance, the UMTS Forum forecasts that "that operator-retained revenues from 3G data services worldwide will represent a cumulative market opportunity worth as much as US$1 trillion globally over the next decade". Others are less optimistic. Forecasts by market researchers and analysts of 3G penetration and market size have been steadily scaled back over the past year or so in response to the general sate of the economy and sector,the disappointing take up of GPRS, and the muted response to initial trials. Even so, the World Markets Research Centre (WMRC) forecasts 84 million 3G subscribers in western Europe by 2007, generating annual revenues of over $36 billion. It forecasts that 27 percent of all mobile subscribers will have a 3G phone by 2007, and that revenues from 3G services will account for one-third of total western European mobile revenues by 2007.

But an article by Joakim Björkdahl and Erik Bohlin in this issue of info shows that making money out of 3G will be extremely difficult. Their financial analysis of the five Swedish licensees indicates that "there will be a substantial profit problem". Björkdahl and Bohlin conclude that:

… the 3G-business case will not be a success for any of the licensees. Our results suggest a troubling picture for the 3G operators in Sweden, regardless of whether the operator is incumbent or green field, although the latter will have an even more difficult time. Of the incumbents we believe that Tele2 will have the quickest payback due to its strategy and its low operating costs.

If their analysis is correct, then it is clear that the Swedish market will be too small to support five operators, and restructuring and consolidation will be inevitable. To be sure, Sweden's market is not so big, but what are the ramifications of this analysis for others, particularly those that paid huge licence fees in the UK and Germany? If things go pear-shaped, will governments really be able to sit on their "windfall tax" and say they cannot intervene in the market?

Colin Blackman