No bids for third mobile license

The bidding deadline for Latvia's third mobile-telecommunication license came and went without bids, and some industry insiders and analysts said the government missed its chance by waiting too long to organize the tender.

The Transport Ministry said last week it had not received bids for a UMTS/GSM license that was scheduled for auction beginning Sept. 18.

Latvia's two existing mobile operators, Latvijas Mobilais Telefons (LMT) and Tele2, applied for UMTS, or "third generation" licenses priced at 5.8 million lats (10.35 million euros) each, the ministry said.

The starting price for the UMTS/GSM license had been set at 7.6 million lats.

The results mean that Latvia is likely to be without a third mobile operator for the next two to three years; tender regulations say that any unsold licenses must be taken off the market for 24 months, during which time prices will not be lowered.

Some say that could slow what has been a rising rate of mobile penetration.

"Absolutely, it will cut into penetration," said Andris Ogrins, regional manager of the Estonia-based Trigon Capital investment bank.

Some 717,000 Latvia residents among the country's 2.3 million are mobile subscribers, and the mobile penetration rate in 2001 nearly reached 28 percent, according to the Central Statistics Office.

Estonia has long been the clear Baltic leader in mobile penetration, with a 2001 rate of nearly 46 percent, but Lithuania, with nearly 26 percent penetration, has been creeping up on Latvia.

Estonia and Lithuania have three mobile operators, making for what Ogrins called more competitive markets.

"Latvia has always been second behind Estonia, but now Lithuania has surpassed Latvia," Ogrins said. "At the end of the day, the costs are going to be passed on to the consumers."

Pauls Platais, director of corporate finance for Hansabanka, part of an advising consortium to the tender, said Latvia's upward trend in mobile users would continue.

"The trend will be there, the question will be how quickly penetration grows," he said. "It's still difficult to tell."

Transport Minister Anatolijs Gorbunovs blamed the lack of interest on the economic malaise in the global telecom market.

Many of Europe's largest telecoms overextended themselves in the late 1990s by investing billions into third generation, or 3G, licenses, then being forced to write these investments off as losses when technological glitches, rising costs and lower-than-expected consumer interest delayed in many places the launch of new networks.

Third generation offers high-speed Internet and wireless connections as well as data and video streaming.

Janis Leils, director of the Latvian Telecommunications Association, said the government painted itself into a corner by waiting so long to organize the auction.

"I have one small question: What was the government doing in 1999-2000, the best time for this," Leils said. "That's when everyone was bidding for these licenses. This was very bad timing."

The ministry has said the auction was not possible until after the passage of a telecommunication law in 2001. The law determines the rights, duties and liabilities of telecommunication service users, operators and service providers.

Leils too said the delay would hurt Latvia's nascent but growing mobile market.

"There is a market here. It may not be as big as a country like Germany's, but there's room for a third operator."

Ogrins also said staging a general beauty contest for the licenses with predetermined fees might have provoked more interest than an auction, which required bidders to pay a license fee.

"That fee essentially is a tax on consumers because the operators would have to pass on those costs through higher tariffs," he said.

Sweden, Norway, Finland and France are among the European countries which have offered 3G licenses through beauty contests.

He also said the most appealing license for a third operator would be a simple GSM one, since 3G will be attractive primarily to the highest paying subscribers, a market already cornered in Latvia by No. 1 operator LMT.

Officials at LMT are indeed banking on substantial consumer interest in the new third generation technology.

"Telecommunications and information technologies are in constant progress, and the third generation mobile-communication technologies will definitely develop as well," Juris Binde, LMT's president, said in a statement.

He said the schedule for selling and issuing the new licenses would allow LMT to study the experience of 3G operators elsewhere to pinpoint the types of services Latvian clients may want.