Analysts say Vodafone bid too ambitious

Vodafone may have submitted a very ambitious bid for a third-generation mobile phone licence in the Republic that would leave…

Vodafone may have submitted a very ambitious bid for a third-generation mobile phone licence in the Republic that would leave it open to hefty penalties if it failed to meet its own exacting roll-out targets.

Telecoms experts claimed yesterday this was probably one reason why the firm is agonising over whether to accept the licence it has been offered by the telecoms regulator, Ms Etain Doyle. They say the company may have set itself very difficult targets to attain, regarding the service levels it would provide within certain timeframes.

Vodafone confirmed this week it may not purchase a third-generation licence in the Republic and has been granted an extra month to make a final decision.

Third-generation mobile technology should enable companies to offer video clips and other data services on mobile devices at very high speeds. But a spate of technical hitches and the huge cost of buying licences has caused some firms to abandon the technology.

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Under the rules of the comparative selection process in the Republic, operators were encouraged to compete on the speed at which they would roll out the new third-generation mobile networks.

The tender document, which has been seen by The Irish Times, shows operators were awarded marks for building out their networks faster than the minimum requirements set by the regulator.

Vodafone, O2 and Hutchison Whampoa would not have known whether competitors Orange and Meteor were going to submit bids for the licences in the run up to the application deadline. Several industry sources said yesterday this may have caused Vodafone to bind themselves into aggressive roll-out targets in their application.

Vodafone would not comment on the issue when contacted last night.

The tender asked each applicant to submit the time to reach the minimum requirements of 33 per cent population coverage by 2006. Extra marks were awarded to companies that agreed faster roll-out commitments in the contest. This would have increased the immediate cost to Vodafone for rolling out its third-generation network, but would have meant it submitted a more competitive bid.

Another element of the tender in which Vodafone may have bid over-aggressively is in the number of performance guarantees it offered to the regulator. These guarantees, which take the form of a cash deposit or financial bond provided by a bank, could be seized by the regulator if the firm defaulted on its roll-out targets.

Under the structure of the tender, Vodafone submitted its own level of performance guarantee, which would have been evaluated by the regulator as part of the overall licence contest. Once again, marks were awarded to firms on the basis of the amount of cash committed to back targets.

Mr Daragh Stokes, managing partner in Hardiman Communications, said the award of the second-generation mobile phone licences was based on similar principles to the new tender. But the problem with third-generation technology was that there wasn't the same appetite for the data services that it promised as for voice services.

Mr Stokes also said more fundamental issues were probably also being evaluated by Vodafone. The firm must decide if it can get better returns elsewhere and whether it can generate revenue from the technology, he said.