Group 3G, the UMTS license-holding German joint venture of Telefónica Móviles SA (57.2 percent) and Sonera Corp. (Nasdaq: SNRA) (42.8 percent), has ceased commercial activities after seven months as a GSM service provider. The venture paid DM16.446 billion (US$8.36 billion) for its 3G license in August 2000.

The company, operating under the brand Quam, had built a subscriber base of 197,000 by the end of June by piggybacking on E-Plus Mobilfunk GmbH's network as a precursor to the launch of 3G services. Now it seems the evolution to 3G will not happen, leaving five competitors still planning their W-CDMA networks. Those five are T-Mobile, D2 Vodafone, E-Plus Mobilfunk GmbH, O2 Germany, and Mobilcom AG.

The decision comes as Moviles announced net income of €569 million ($566 million) in its second quarter, but took a staggering €4.9 billion ($4.87 billion) hit for the writedown of mobile assets in Germany, Italy, Austria, and Switzerland and the restructuring costs associated with those assets. That leaves Moviles with a quarter's loss of €4.33 billion ($4.3 billion). The wireless company's chairman, Luis Lada, offered himself up as the scapegoat and quit. He will be replaced by Antonio Viana-Baptista, who formerly was in charge of Telefònica's Latin American fixed line businesses.

Moviles parent Telefonica also took the brunt of this writedown in its overall figures for the quarter. It posted an overall loss of €5.7 billion ($5.68 billion).

Moviles blamed the move to scale back its pan-European mobile ambitions on 3G technology delays and the need "to update current business plans." Moviles added: "In the coming months, Group 3G will adjust its activities and organizational structure to implement the decision taken by its shareholders. It is anticipated that this restructuring process will be completed before the end of the current year."

So what will happen to the businesses in Germany, Italy (Ipse 2000), Austria (3G Mobile Telecommunications), and Switzerland (Team 3G), in which Moviles has an interest? "All decisions with regards to UMTS will be postponed until there is a significant improvement in the technological and market conditions."

To make things worse for Sonera, it had not expected Moviles to say anything until Thursday. When the Spanish operator released its results late Wednesday, including details of the decision to close Group 3G, Sonera had to quickly release a statement to its investors. The tone of the statement was not one of joy. "Telefónica Móviles has published its interim report for April-June and information on German Group 3G (Sonera 42.8%) earlier than intended. Sonera will announce its interim report on July 25, 2002, at 10.00 a.m. Finnish time. Before that Sonera will not comment any related questions." OUCH!!

For the full rundown on Moviles's financials and updated customer figures, check the operator's news releases.

— Ray Le Maistre, European Editor, Unstrung
http://www.unstrung.com