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Orange Squeezed in Sweden

Orange Sverige AB is the latest operator to come down with a case of the slows. On Tuesday, it asked the Swedish regulator to give it three years breathing space on meeting 3G network rollout demands. Orange is tight-lipped on what is actually causing the squeeze, but the regulator's office is a little more forthcoming.

The regulator's spokesman says that Orange had made two main requests. It wants to prolong the rollout until the end of 2006, rather than 2003, and would like the minimum coverage requirement at that time to be reduced to 8.3 million, down from 8.8 million. 8.8 million Swedes is pretty much the whole population. In point of fact, if an operator were to dispense with pesky, lilla details like country-wide mobility, base stations on just 25 percent of the geographical area would give blanket coverage.

The reasons behind Orange's requests run the whole gamut: It has problems with getting base-station permits; it is faced with a poorly functioning market for roaming; it has to grapple with equipment manufacturers that cannot meet timetables set up during the licensing process; it sees low demand for data services; and, last but not least, the sharp turnaround in the financial markets is not making life easy either.

Which doesn't really leave out much, apart from the handset.

However, an Orange spokesman says the company is “committed to a presence in Scandinavia, in both Denmark and Sweden." So, apparently, no pullout. He also adds that "there is no cut in capex, it is full steam ahead" and that "Orange is focused on delivering a robust network."

The regulator's office says it’s "still too early to tell" whether Orange's requests would fall or deaf ears or no. However, there are some precedents for lightening the regulatory burden. The Swiss, Spanish, and Portuguese regulators have already obliged operators in their regions, at least in part. The Swiss said that their decision to eliminate the demand for coverage of 20 percent of the population by the end of 2002 was prompted by a desire to avoid "disappointing experiences, like the those seen at the introduction of WAP."

Part of the decision in Sweden – whether the terms will be changed or not – is bound to hinge on the response of those companies that were not awarded a license. One of these just happens to be the incumbent, Telia AB, which is 70.6 percent owned by the Swedish state.

When the Swedish UMTS licenses were awarded by “beauty contest” in December 2002, Telia was deemed too shy of technical charms to even get to the second round. Quite a humiliation. But Telia didn't take it to heart. It quickly shacked up with one of the license winners, Tele2 AB, to jointly build a 3G network and offer services.

How it would respond to seeing the goalposts moved for competitors is not clear. However, its current response to competition itself is not quite so mysterious.

The two greenfield operators in Sweden, Orange and Hi3G Access AB, are partnering with Vodafone Group plc (NYSE: VOD) in the buildout of a rural Swedish network. This will cover 70 percent of the geographical area, and appears to be coming along nicely – at least Hi3G still expects to meet the regulator's demands, according to its spokesman.

However, in Stockholm, Gothenburg, Malmö, and Karlskrona – the major towns – Orange is going it alone. The Swedes are quite laid-back when it comes to network infrastructure sharing. The regulator's note on the matter states: "The authority can see no reason to limit the opportunities for joint use and joint localization of the various resources," going on to add that infrastructure such as masts, buildings, or cabling for power up to the base station can all be shared.

The question, then, has got to be: With permits so hard to come by, why is Orange not sharing sites in the towns?

Of course, Telia already has lots of nice base station sites, and it does offer antennae space to its competitors. However, according to the spokesman at Hi3G, the price is such that, taken over three years, building a mast would be cheaper than leasing space on Telia's equipment.

All this rather suggests that Telia is not giving too much ground in Sweden – just as Deutsche Telekom AG (NYSE: DT) is not shifting in Germany, and British Telecom (BT) (NYSE: BTY) bitterly defends its home turf.

Simon Surtees, an analyst at Bear Stearns International Ltd. in London points out that "the likelihood that two greenfield operators could thrive in a relatively small and mature market such as Sweden is slim indeed." Penetration in Sweden hovers around 82 percent, with a total population of around 8.9 million. So, even mopping up every last low-margin customer wouldn't make for much of a business case.

That said, Surtees thinks the news about the request to the regulator is “mildly positive" because it marks "the new realism among European telecoms groups towards next-generation wireless services."

Currently, Telia has 3.3 million GSM customers in Sweden, which represented 18.4 percent of its overall net sales in the first half of 2002. Neither Tele2 nor Telia have returned requests for comment on the progress of their own UMTS rollout.

— Ouida Taaffe, special to Unstrung
http://www.unstrung.com
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