Vodafone says shortage of 3G handsets could cause delays

Vodafone, the world's biggest mobile phone network operator and parent of Eircell, has warned that the roll-out of third-generation (3G) internet enabled mobile services could be deferred until 2003 due to a shortage of handsets.

The news, as well as pressure from weaker US stock markets, sent Vodafone shares tumbling to 141.25p sterling. The 4.6 per cent fall brought the British group close to a three year low.

Eircell - the largest Irish mobile phone network - was acquired by Vodafone in May in a deal that saw shareholders in Eircom get in the region of one share in Vodafone for every two they held in Eircom. Vodafone shares have fallen steadily since the deal was concluded when they were trading between 190p and 200p sterling. A Vodafone spokesman said yesterday that the company was slowing the roll-out of 3G infrastructure in the UK and elsewhere in Europe. It now plans to build 750 3G base stations in the UK by the end of this year instead of the original plan for 1,200.

The spokesman said Vodafone still plans to launch its 3G, or UMTS (Universal Mobile Telecommunications System), services in the second half of next year and that any slippage to 2003 would only be caused by a shortage of handsets.

"We are not saying that our 3G services will definitely slip to 2003," the spokesman said. "We are still targeting the second half of next year," he added.

Vodafone has said that it will bid for a 3G licence in the Republic when they are auctioned later this year. The awarding of the licences has been delayed by over seven months because the Department of Finance and the Office of the Director of Telecommunications Regulation have yet to agree a format for the process. It is expected that it will be a mixture of an auction and a beauty contest. Worries over whether mobile phone operators can recoup the #120 billion spent on 3G licence auctions elsewhere in Europe have contributed to Vodafone's woes. The concerns have been heightened in recent weeks following Japan's NTT DoCoMo Inc postponing the launching of the world's first 3G service.

The industry believes the technology, which will bring high-speed internet services, including video and music downloads, to hand-held devices, will put it on a new growth trajectory now that sales of conventional phones are nearing saturation.

As well as the technical glitches affecting DoCoMo, services are being delayed by the late production of so-called "dual mode" handsets. These will support both 3G and existing services, ensuring people can use their phones in areas where the operators have yet to roll out their 3G networks.

"There is, despite what some manufacturers may say, a slip in the availability of handsets," said Vodafone Chief Executive Chris Gent.

Many analysts are not expecting handsets to be widely available until 2003-4. "3G will be rolled out in most countries first in small quantities to corporate users. It will be some time before it reaches the masses," said Mark James, analyst at Nomura in London.

Another Vodafone analyst said the slowed rollout meant the company would cut its capital expenditure on 3G by 5 per cent in the year to March 2002 and 13 per cent the following year.

"This means UMTS could be slipping again which obviously means lower spend for the equipment makers," he said.