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Cesky Mobil a.s. on UMTS tender in the Czech Republic

01. February 2001

The Czech government is expected to deal with the Czech Telecommunication Office's (CTU) proposal for the sale of UMTS licenses at its weekly meeting on February 14th, 2001. Therefore, Český Mobil believes that now is an appropriate time for the company to make a statement regarding the conditions under which the licenses will be awarded. We understand that the government intends to structure the tender in two rounds - offering a UMTS license to each of the incumbent operators in the first round for a price of CZK 5B (USD 125M), and offering a fourth license (and any of the three licenses not acquired by incumbents in the first round) in the second round by way of auction. “In order for the UMTS tender in the Czech Republic to be a success two things should occur – the government’s expectation to receive CZK 5B (USD 125M) per license should be lowered, and the introduction of a fourth operator should be delayed for at least three more years.” says Mario Mele, Český Mobil’s Senior Director of Business Development.

The Czech government is expected to deal with the Czech Telecommunication Office's (CTU) proposal for the sale of UMTS licenses at its weekly meeting on February 14th, 2001. Therefore, Český Mobil believes that now is an appropriate time for the company to make a statement regarding the conditions under which the licenses will be awarded.

We understand that the government intends to structure the tender in two rounds - offering a UMTS license to each of the incumbent operators in the first round for a price of CZK 5B (USD 125M), and offering a fourth license (and any of the three licenses not acquired by incumbents in the first round) in the second round by way of auction. “In order for the UMTS tender in the Czech Republic to be a success two things should occur – the government’s expectation to receive CZK 5B (USD 125M) per license should be lowered, and the introduction of a fourth operator should be delayed for at least three more years.” says Mario Mele, Český Mobil’s Senior Director of Business Development. Mr. Mele adds “Although the business case for UMTS is very uncertain at this point, we believe that, if the other terms and conditions of the license are reasonable, a fair price for a UMTS license in the Czech Republic is between USD 40M and 50M. The government’s expectation that it will receive USD 125M per license is unrealistic in light of recent UMTS tender results in other European countries and the current negative sentiment in the markets towards wireless operators and the funding of UMTS in general. In addition, it is also very questionable whether there will be any interest in a fourth license. The financial markets are increasingly questioning the ability of new UMTS entrants to survive in competitive markets such as the Czech Republic. For example, Forrester Research has recently stated that it does not believe that any new UMTS entrants will survive anywhere in Europe beyond 2007. The primary reason for this is that operators will not realize significant revenues from the high-speed data services that will be made possible by UMTS until 2004 or 2005. Introducing a fourth operator before then will result in more competition that the market for voice and lower speed data services can bear. Therefore, it is our view that the government could very well raise more money through the tender if it issues only three licenses and postpones the entry of a fourth operator until 2004.”

Jon Eddy, Chief Technical Officer at Český Mobil, adds “It is important to understand that networks costs for UMTS will likely be more than double than that of GSM and we do not expect cost savings to incumbent operators from existing infrastructure to exceed 20% of overall costs. When you also consider that it is likely that core network technology and handsets will not be available until 2004 or 2005, it is very difficult to build a business case that justifies a license fee in excess of USD 50M.”