Vodafone Gets the Jitters

Vodafone Group plc's (NYSE: VOD) Irish operator is stalling its acceptance of a 3G license only weeks after criticizing the country's telecom watchdog for not awarding the license earlier.

Ireland's regulator, the Office of the Director of Telecommunications Regulation (ODTR), offered the country's single A license to newcomer Hutchison 3G Ireland Ltd. (no Website yet) on June 25, which Hutchison duly accepted (see Irish Eyes Smile at Hutchison). This left the other applicants, Vodafone Ireland and O2 Ireland, each with the chance to accept a B license. The two local operators had until close of play yesterday, August 14, to accept.

O2 Ireland, part of the mmO2 plc group, and currently number two in the Irish market with a 40 percent share (about 1.2 million subs), met the deadline (see O2 Wins Irish 3G License). But the Vodafone business, which dominates the market with a 57 percent share (1.7 million customers), got cold feet.

Now the regulator has granted Vodafone more time to consider whether to accept the B license (see Ireland Offers 3G Licenses). "An extension was available to any applicant, and we have been granted one until September 12," says Vodafone Ireland spokeswoman Joan Keating. "We sought that extension so we could carefully consider and evaluate the license that has been offered to us. We are just taking a careful and mature approach to the situation."

Is there anything particular that has prompted the need for more maturation? "I can't discuss any specifics," says Keating. Is it likely Vodafone will take the license come September 12? "A final decision has not been reached."

Given that the terms of the B license on offer have not changed -- 33 percent of population covered by June 2006, 53 percent by June 2008, for an upfront payment of €44.4 million (US$43.6 million) and a further €69.7 million ($68.4 million) phased over the next 15 years -- Vodafone has changed its tune somewhat since June 25. When the ODTR announced Hutchison's A license victory, Vodafone Ireland's CEO Paul Donovan laid into the regulator, Ms Etain Doyle, for not announcing the immediate award of the B licenses.

"Unfortunately, we are still awaiting the decision on the 'B' licence [sic], which was our clearly expressed preference," he stated in an official release. "I urge her to move to conclude a process that has had operators, investors and Irish mobile customers in a state of suspense for much longer than is acceptable. Vodafone Ireland is keen to progress the development of its 3G programme [sic]. Well-positioned to leverage the experiences of the Vodafone Group worldwide, unfortunately we are still in the dark as to when we will be allowed get on with the work in hand."

Well, now it's Donovan who is keeping everyone in suspense. According to Jon Earl, part of the investor relations team at the Vodafone Group, the delay is not down to pressure from the head office in Newbury, England: Such decisions are taken at a local level, he says. "They have requested the extension to take a further look at the plans," Earl tells Unstrung.

So what has changed in the past seven weeks? Well, it seems that the various issues surrounding 3G timescales, some of which we mentioned yesterday (see Europe's 3G License Giveaway), have given Donovan and crew cause for reflection.

"It's true we had issued a strong statement previously," says a Vodafone Ireland spokesperson on behalf of the CEO, who was very busy in meetings and not available personally. "Since then we have been taking note of what has been happening elsewhere in terms of 3G timescales, and we've decided to make best use of the time available to gather up all the information available. To speculate that we have applied for this extension for any particular reason would be totally inaccurate." But it does mean Vodafone doesn't have to hand over the initial €44 million for a few more weeks yet, though we are not for a moment suggesting that's the reason. No sir.

Should Vodafone bite the bullet and bring the number of 3G players to three, that will leave just one existing GSM player, relative newcomer Meteor Mobile Communications, out on a limb as a 2G-only carrier. Meteor, which entered the market in February 2001, has just 3 percent of the market (about 90,000 customers) and did not even apply for a 3G license. This gave immediate rise to suggestions that Hutchison would seek to acquire the operator so as to gain an installed user base, though Hutchison denies any such plan.

With just 3.8 million people in Ireland, of which 2.97 million (77 percent) have mobile phones, the potential returns from a 3G investment are obviously limited, though that didn't stop the ODTR making three B licenses available, one of which is now gathering dust. All of which makes grim news for the Irish treasury. Not only is it short one 3G license-worth of wonga, it's going to have to wait a bit longer to stick Vodafone's upfront payment in the bank, too.

— Ray Le Maistre, European Editor, Unstrung

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