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3G/HSPA

KPN Linked to MobilCom Assets

Dutch carrier KPN Telecom NV (NYSE: KPN) is at the center of speculation over its plans to roll out 3G in Germany. Analysts link the company’s mobile subsidiary, E-Plus Mobilfunk GmbH [ed. note: get FUNKY people!], with the purchase of 3G assets from failed German operator MobilCom AG, which is desperate to pay off some of its debt incurred from the DM16.37 billion (US$7.6 billion at the time) it handed over in August 2002 for a German 3G spectrum license.

According to media reports, E-Plus is set to pay €20 million ($22.7 million) for MobilCom’s 3G infrastructure network, which won't hurt Mobilcom's debt position, but also doesn't do much to help. The sale of MobilCom’s assets includes 3,600 base-station sites and follows parent company France Telecom SA's (NYSE: FTE) decision to withdraw funding (see FT Dumps MobilCom).

Although the network sale does not include MobilCom’s 3G license itself (E-Plus already holds its own German license), such a deal could help E-Plus speed its own 3G network rollout in the country. Local regulatory rules state that each carrier has to cover at least a quarter of Germany’s population by the end of 2003.

Bena Roberts, wireless services analyst at Current Analysis, says the deal has been struck following KPN’s decision to waive a dispute over a national roaming service contract with the bankrupt carrier. KPN had hoped to gain billions of euros of additional revenue from 2G roaming agreements with MobilCom and Quam (the abandoned 3G venture owned by Telefònica SA and Sonera). These will now not materialize (see MobilCom Ends E-Plus Deal).

Roberts is unable to confirm that the €20 million price tag is the official price, but states that her recent discussions with MobilCom indicate that KPN is the only carrier interested in the assets and capable of stumping up the required cash. “KPN isn’t flush, but it has high hopes to create a pan-European footprint,” she explains. “It is now concentrating on mobile services in its core markets of Germany, Belgium, and the Netherlands. There have also been rumours of mmO2 plc buying Mobilcom’s assets, but that just isn’t realistic, given its financial position.”

KPN isn’t denying the rumours. “We hope to be able to talk further about this from Tuesday of next week, following Monday’s financial results,” a company spokesclog tells Unstrung. The fact that MobilCom has publicly stated that the sale of its third-generation network will be completed by the end of this week adds fuel to the rumor fires.

According to Phil Kendall, director of the global wireless practice division at Strategy Analytics Inc., €20 million for 3,600 base-station sites would be a bargain. “That works out at £5,555 [$8,970] per site -- probably a tenth of what MobilCom paid,” he comments. “It is a very good way of getting hold of a lot of base stations and cell sites in one go, especially given the potential planning permission problems that can arise.”

Not that KPN will have an easy time in the German 3G market. The research gurus at Ovum Ltd. estimate that T-Mobile International AG and Vodafone Group plc (NYSE: VOD) control 79 percent of the German 2G mobile market, with KPN notching up just 13 percent of the market (nowhere near its original target of 33 percent). Kendall states that E-Plus has been “struggling in Germany for the last couple of years after having been sucked into the consumer market” with a high proportion of less lucrative prepay customers. He does add, however, that the German market has one of the lowest wireless penetration rates in Europe (65 percent) and offers “reasonable potential for subscriber growth.”

Meanwhile KPN is also thought likely to dump its 15 percent stake in Hutchison 3G UK Ltd. following its recent refusal to further fund the British newcomer (see KPN Mobile Nixes Loan). KPN has made clear its feelings that it regards the stake as a non-core business, and in September 2002 announced that it will make no further investments in Hutchison 3G unless required to do so under its Shareholders' Agreement with Hutchison Whampoa Ltd. (Hong Kong: 0013).

But what will such a stake be worth, should the Dutch carrier decide to sell? In light of Hutchison’s slow rollout in the U.K. (see Hutch's Weekend Hangover and 3 Keeps Europe Waiting) and poor consumer reaction to the new technology, Kendall claims any price tag would simply be of “nominal” value. “It’s probably worth very little. It won’t be worth anything near what KPN put into it in the first place.”

In all, it is shaping up to be a busy week for the Dutch player. The company yesterday announced plans to begin its assault on the European wireless LAN market with its purchase of local hotspot provider HubHop (see KPN Signs Piddly Deals). It was a small deal, worth "only" €1.5 million ($1.7 million) and dwarfed by the recent activities of pan-European wireless LAN daddy Swisscom AG (NYSE: SCM) (see Swisscom Buys a Bevy of PWLAN and Swisscom, SFR Link Hotspots).

Such frugal activity may be explained, however, if next week’s news indicates exactly why KPN has been saving its pennies...

— Justin Springham, Senior Editor, Europe, Unstrung

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