Rome warned over mobile phone licences

Date: 08/07/1999

By Tim Jones

EUROPEAN Commission telecoms officials have warned the Italian authorities against early plans to hand over new generation mobile network licences without subjecting them to a competition.

Staff in the Directorate-General for telecoms (DGXIII) have signalled their concern that Rome may favour incumbent operators when granting companies permission to set up five Universal Mobile Telecommunications System (UMTS) networks.

"It is absolutely vital that member states get this third-generation licensing right," said a Commission source. "We will look carefully at any procedures which could reduce competition or make inefficient use of the spectrum."

Telecoms analysts say the cross-over to UMTS could be as significant as the swap from the old analogue to the digital system. The new phones will be able to surf the Internet, and the most ambitious forecasts suggest average homes could soon be buying three mobile units: one to be carried around for voice communications, another attached to a computer and a third built into the car for onboard navigation.

Italian Communications Minister Salvatore Cardinale announced recently that his government would begin procedures for tendering for licences to operate five UMTS networks. However, he set alarm bells ringing in departing Commissioner Martin Bangemann's department by claiming four licences would be awarded by right to second-generation operators.

These are Olivetti's Telecom Italia Mobile (TIM); Mannesmann-owned Omnitel; Wind, a consortium led by state-run electricity group ENEL, France Télécom and Deutsche Telekom; and Blutel, the last company to win a second-generation licence.

DGXIII, which has been stung by the sudden departure of its Commissioner for a job on the board of Spanish operator Telefonica, has contacted Rome for "further information".

"At first glance, such a procedure by the Italians could well violate the licensing directive," said one official.

Article 10 of the 1997 'common framework for general authorisations and individual licences' states that individual licences for mobile services must be granted subject to "open, non-discriminatory and transparent procedures".

The British government, which is planning an open auction for five brand new UMTS licences, examined whether second-generation permits could be adapted to allow operators to carry out the new services. However, it concluded that even this would leave the government open to legal challenge under the directive.

Incumbent operators in all EU countries believe the 'non-discriminatory' clause in the directive effectively discriminates against them.

British mobile operator One2One has taken the government to court over its plans to force all existing operators to sell capacity to the successful bidder for the fifth UMTS licence while it builds its own network.

The Austrian government, which plans to auction UMTS licences in 2002, has come under fire from Telekom Austria's Mobilkom, which says it has already invested millions of euro installing and expanding its GSM mobile networks.

Mobilkom claims that since the cost of establishing a UMTS network could be as high as €550 million, existing operators should not be liable to pay further licence fees.

The Italians do not expect to have the UMTS standard networks up and running before 2005 - long after the vanguard in the Netherlands, Finland, Austria and the UK.

Cardinale claims that the delay will be caused by a clogging up of the spectrum as the 1900-1980-megahertz frequency band is partly occupied by radio and television signals, most of which are 'owned' by state-run broadcaster RAI. These will have to be moved to free up the bands for UMTS, and RAI will undoubtedly seek compensation.

"This is the whole point of efficient tendering procedures," said one EU diplomat. "Radio spectrum is a scarce resource and putting it out to the highest bidder allocates it efficiently and, by a happy coincidence, can give money back to governments."

Commission officials expect Cardinale to back away from his current approach since the four incumbent operators will be in a strong position in any case to win the new-generation licences.

Keyword: Universal Mobile Telecommunications System (UMTS).