Work is just beginning for Hutchison Whampoa

 

Hutchison Whampoa may have been a clear winner in the Irish contest for third-generation (3G) mobile phone licences this week, but it could struggle to convince its shareholders that Irish 3G is a winner.

The Hong Kong-based conglomerate is the most aggressive proponent of the new technology, which enables firms to offer a range of internet and video services to mobile devices. It has won 3G licences in Britain, Italy, Sweden, Denmark and Austria and, from a strategic point of view, it makes sense to enter a market bordering with Britain.

Likewise, the €50.7 million licence fee, payable over 15 years, looks cheap compared to the more than £4 billion sterling (€6.17 billion) fee the firm paid to enter the British market.

But Hutchison will face a long road to turn a profit from its 3G investments in Europe, where, as a new entrant, it may struggle to pick up subscribers. The weak performance of Meteor in the Irish market, where O2 and Vodafone hold 97 per cent market share, shows customers won't switch networks without a compelling reason.

Indeed, struggling Meteor may become a takeover target for Hutchison, not so much because of its subscriber base - which tends to be dominated by low-value subscribers - but rather for its masts and sites that would enable Hutchison to set up here faster.

The real test for Hutchison will be whether it can deliver so-called "killer applications" for 3G technology, which will ignite customers' interest. Recent surveys suggest customers will continue to use their mobiles for simple text messaging and voice calls, casting doubt on mobile company's multibillion dollar investments.

Meanwhile, attempts by the telecoms regulator Ms Etain Doyle and the new minister in charge of communications, Mr Dermot Ahern, to make political capital from the 3G licence award were wide off the mark.

Mr Ahern, with an eye to the dwindling State finances, stressed the €280 million that will flow through to the Exchequer over the next 15 years. And Ms Doyle, perhaps with an eye on the formation of a new communications commission, heralded the arrival of a new entrant in the mobile market here.

But such politicking is disingenuous, given the sorry state of the Irish telecoms sector and years of dithering over the 3G contest.

The record speaks for itself. A protracted dispute between the Minister for Finance, Mr McCreevy, and Ms Doyle over the size of the licence fees delayed the contest by more than a year, making us the last State in Europe to award 3G licences. Now it looks set to yield less than half the projected €600 million and one of the four licences looks unwanted.

Not a strong record for the "e-commerce" hub of Europe and certainly not much to crow about.