The Latvian government, spurred by the Ministry of Transport, has announced it will auction the third combined GSM/UMTS licence on January 7, with a starting price of LVL 1.3 million. Applicants for short-listing must apply by December 21. The terms of the auction will also require the new entrant to build an entirely independent network and invest at least EUR 150 million.
According to this blogger's sources, the auction was railroaded through over the objections of officials inside the Transport Ministry and the profound skepticism of the Public Utilities Regulatory Commission (see my earlier post). It appears – and some international analysts agree – that this auction, like its predecessor in 2002, will fail. Back then, the government set a starting price of LVL 5.8 million. The Communications Department of the MoT, which advocated a starting price of LVL 500 000, is understood to have abstained from endorsing the fast-track auction.
One reason no one may show up is that even if LVL 1.3 million is not a huge sum for major international operators, it still has to be spent based on a careful and considered study of the Latvian market and a detailed, up-to-date set of documents outlining what it is the operator will be getting. It appears that as far as the terms of the auction, the MoT has simply cut, pasted and switched some key figures in the 2002 tender documents. With a three week deadline, it is hard to see how any company can make a reasoned and prudent decision. The operators listed in the 16-page (appendices included) market study seem to have expressed nothing more than a polite interest in Latvia, IF...etc. It is doubtful that the MoT, which ordered this criticized report, has any detailed, up-to-date documentation to offer potential bidders, answering such questions as easements (to put up base stations on public and private buildings), the possibility of roaming (with incumbents on reasonable commercial terms), etc.
While the MoT's cut and past may be OK as a way to avoid writing a largely standardized document from scratch, it doesn't address the issues of whether there is actually a market for a third UMTS/GSM operator in Latvia and whether UMTS is a viable solution for a small, saturated and relatively poor market such as Latvia.
There are now probably around 1.4 million mobile phone users in the country, out of a population of around 2.3 million. Any new users are unlikely to be the kind of high ARPU generating business users that a UMTS operator needs to cover its costs, never mind make any money. If one talks about 3G rather than UMTS, then there already is a "third" operator, Triatel, actually the first to offer 3G services via CDMA-450. Meanwhile, one would expect incumbents LMT and Tele2, who must start their UMTS services by year end, to be making a major Christmas marketing effort. But we see nothing, yet, not a peep about how they will each at least make their first commercial lat on UMTS by December 31. There must be some reason for this hesitation with LVL 5.8 million sitting as a piece of paper in the corporate files of each company.
In addition, there have been strides in technology that seriously threaten UMTS in the mobile urban business environment. While browsing at a Nokia boutique at the Stockmann department store in downtown Riga, I was told that the latest Nokia Communicator (the 9500 0r 9300) would be Wi-Fi enabled. This means that users will be able to log on to data links as fast or faster than UMTS at its best (around 2 Mbps) and to use their devices to make internet phone calls rather than using any of the mobile networks. Internet telephony over WiFi is a "GSM killer" app if there ever was one, especially if your device makes or at least suggests your choices for you. A multistandard mobile phone of the near future could, for example, default to the user's Skype account when in range of a WiFi hotspot and automatically log on to it and make the call. Who will be the first to buy these devices? The high ARPU business user every operator is after.
I believe that once a significant number of hotspots are set up at business venues (restaurants, hotels, the airport and train station), and especially if Lattelekom launches WiMax, the use even of GSM for voice in the "electronically dense" urban environment (Riga, some other city centers) will decline in favor of "free" internet voice (well, flat-rate, at least).
So who is ready to spend at least LVL 1.3 million, topped by EUR 150 million to build a (superflous) autonomous network nationwide? Probably nobody. So look for another flop. Or at best, some really weird, never-heard-of company coming in and taking the licence on its firts and only bid.