The Week In Review: This Road's Still Bumpy
By Carlo Longino, Fri Oct 27 00:00:00 GMT 2000

Will things ever calm down? It's been another busy week in the wireless world, between earnings season in the US and 3G excitement in Europe.

Monday saw the market's digestion of Nokia and Ericsson's third-quarter results, with Nokia's blowout quarter seeming to come at the expense of its Swedish rival's handset business. Although Ericsson's infrastructure business remains strong (even dominant), continued losses on its handsets prompted the Swedish giant to say it would outsource and relocate much of its production to lower-cost areas like Latin America and Eastern Europe, and shift 40 percent of its handset-making employees to its profitable infrastructure operations.

Corporate news wasn't much quiter on the other side of the Atlantic, either, as Lucent's woes finally caught up to Chairman and CEO Rich McGinn, who was fired as the company posted dreadful fourth-quarter results.

Lucent's Canadian counterpart Nortel saw its share price shaved by about 25 percent after it surprised analysts by missing revenue projections, saying it simply couldn't find enough workers to install all the equipment its customers ordered. This sent shockwaves into the fiber-optics market, with investors questioning the entire sector's viability.

American giant AT&T also announced this week it would split into four parts, with its wireless and broadband operations spun off into their own companies. This move, lauded by most analysts, combined with a good earnings report sent the wireless unit's shares slightly higher.

But the real action in Europe revolved around 3G licenses in Italy and Spain. The Italian 3G auction opened with the country's officials seeing Lira signs, hoping their five licenses would fetch the hefty price tags of those in the UK and Germany. But the auction came to an abrupt end Monday after only three days when the British Telecom-led Blu consortium pulled out, leaving only five remaining contestants for the five licenses on offer.

The end price was only EUR12.16 billion, less than half of what the government hoped to raise, and the winners were incumbents Telecom Italia Mobile, Omnitel (controlled by Vodafone Airtouch and Verizon),and Wind (backed by France Telecom and Italian energy concern Enel), and newcomers Andala (majority-owned by Hutchison Whampoa) and Ipse (stakes owned by Telefonica and Sonera).

Across the Mediterranean, the Spanish government looked to increase its intake from 3G operators by announcing a 30-fold increase in the annual radio spectrum fee it charges operators. Spain's 3G auction concluded in March with the government raising only EUR520 million, setting off a political furor as critics saw the billions being raised in other countries, and the government looked to answer that criticism by raising the fee from its current EUR5 million to EUR150 million in 2001.

Licenseholders cried foul, as they are already committed to offering UMTS services by August 2001 with heavy fines for non-compliance. Two operators have retained counsel on the matter and are preparing to take the government to court to fight the increase.

Several 3G infrastructure contracts were announced this week, the Spanish Xfera group said it would buy infrastructure equipment from Ericsson and Nortel, and rival Telefonica Moviles said it would go with Motorola, which also announced a minor US deal with Alltel. The Wind consortium announced deals with European suppliers Siemens and Alcatel, and France Telecom-owned Orange said it would use Alcatel, Ericsson and Nokia for its 3G infrastructure needs. Germany's MobilCom also said Ericsson would be its sole 3G provider.

Carlo Longino is TheFeature's resident business guru and over-opinionated American. His previous experience includes work for The Wall Street Journal, Dow Jones Newswires and Hoover's Online.