Monday, December 20, 2004

The trial and error auction moves along

Latvia's trial and error auction of its third GSM and UMTS mobile licence went through another iteration when the government accepted on December 20 the Ministry of Transport's proposal to extend the auction's pre-selection application deadline by two months to February 25.
The government (Cabinet of Ministers) didn't, however, change the requirement– considered excessive if not bizarre by some analysts – that the third operator spend at least EUR 150 million to build an new independent network. It merely added the requirement - proposed by the Ministry of Transport, that applicants file a detailed investment plan for how the EUR 150 million will be spent.
However, there are signs that this mininam requirement may change. Minister of Economics Krisjanis Karins (New Era) has wondered aloud why the new operator simply couldn't use the existing networks (at least to start with) on a domestic roaming basis. Infrastructure sharing is also common among competitors when building UMTS networks (Telia and rival Tele2 in Sweden, for example).
The companies, which have expressed a renewed interest in the auction, also are extremely skeptical about the need for such a high investment "floor". Jesper Eriksen, managing director of Danish TDC's Lithuanian subsidiary Bite GSM, thinks the sum could be acceptable as a spending guideline over "the life of the licence" which would probably be quite a few years. Peteris Smidre, who has declared over the weekend that his private company Alina will apply for a licence also privately says the EUR 150 million requirement is "crazy". The Latvian Telecommunications Association, where Smidre has considerable influence, also asked that the investment quota be modified.
It seems now that the next step in Latvia's trial and error process, probably before the February 25 deadline, will be steps to modify the investment requirement. That will not, of course, undo the damage to the reputation of the whole process, which started off with at least the appearance of a desperately rushed procedure aimed at having only one bidder win.
What made the deadline almost impossible to meet was not the timeframe, but the huge investment requirement plus the timeframe. If it were a question of spending LVL 1.3 to, say, 3 million, some international operators could have made a decision on short notice. But spending EUR 150 million when there are, perhaps, only 300 000 new customers to be had, is another story...
Advice to those interested – wait until the New Year. The Minister of Transport may, yet again, reconsider the terms of the auction. At the same time, don't rule out another fiasco. Until the pre-selection applications are in, there are no guarantees. Before the 2002 flop, there were also rumors that Lithuania's Bite or Radiolinja of Finland/Estonia were coming. In fact, both confirmned their interest. But on the big day in 2002 nobody came.
One more thing about the 2002 flop – the starting price was a bit high at LVL 7.6 million and all of the big operators were spooked by the huge sums spend in the big European markets that later brought some companies close to ruin. So perhaps it was mostly external factors beyond Latvia's control. In the present auction, the main factor of uncertainty seems to be precisely the unpredictable trial and error approach of the Latvian government in trying to auction off the licence.

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