Telefònica Mòviles SA has got itself into a right pickle with its European 3G investments and is attempting to dig itself out of a deep financial hole.

The operator had planned to offer third-generation cellular services in Switzerland, Germany, Italy, and Austria, spending €6.49 billion (US$7.35 billion) on UMTS (Universal Mobile Telecommunications Service) licences for the four regions.

However, the carrier now wants to pull the plug on these markets (see German 3G Player Folds) and concentrate on its core business in Spain.

According to spokesman Juan Jose Berganza, no pan-continental 3G rollout will take place. “We are definitely not going to roll out commercial 3G services in those countries,” he tells Unstrung. “Our European focus is now based on the Spanish market.”

But, in order to avoid getting whacked with heavy fines for not providing 3G services in the markets it now wants to dump, the carrier will have to find buyers for its unwanted licenses or persuade the relevant authorities to soften their rules on stringent rollout deadlines.

Either option looks set to be a tall order.

Telefònica Mòviles admits that discussions with local regulators are underway with regard to possible spectrum trading and a relaxation of rollout timelines. “We are in touch with the authorities in each country to see which steps can be taken to ensure as flexible an approach as possible,” says Berganza.

In Germany and Austria, legislation dictates that the carrier must have networks in place covering 25 percent of the population by the end of this year. In Italy, the operator must be offering service in all regional capitals by mid-2004, while Swiss requirements come into force at the end of 2004.

As a result, the carrier stands little hope of recouping its potentially wasted investments through the sale of spectrum without formal legislative changes being implemented by the governments concerned. So far, only Italy has shown signs of relenting.

According to Berganza, Italian authorities are currently looking into the possibility of authorizing such a sale. “Regulation is more open there, and the government is preparing new rules to allow spectrum trading,” he says. “The two main carriers -- Telecom Italia Mobile SpA and Vodafone Omnitel -- are expected to be able to buy spectrum from us. The situation in other countries is very different though.”

Even if regulators in Germany, Austria, and Switzerland do permit the sale of 3G spectrum by Telefònica Mòviles, analysts believe the carrier will struggle to find an interested party.

“I don’t know who would buy such licenses; they would be very difficult to sell,” comments Bena Roberts, European wireless services analyst at Current Analysis. “There is no one out there who really has the capital for such investments. Austria and Switzerland are also highly competitive markets with relatively small populations. That isn’t a great incentive for a would-be purchaser.”

— Justin Springham, Senior Editor, Europe, Unstrung