Report: BT, Vodafone in talks to share 3G costs

UK telecommunication giants Vodafone and British Telecom are holding talks to find a way to share the high cost of building 3G networks.

          UK telecommunication giants Vodafone Group and British Telecommunications (BT) are holding talks to find a way to share the high cost of building 3G (third-generation) networks, according to a report in the Sunday edition of the U.K. newspaper, The Observer.

          Though the companies are arch-rivals, BT, which is struggling under a mountain of debt due in part to its acquisition of 3G spectrum licences, is very keen to partner with Vodafone to recover some of the costs of the licences, the report said. Furthermore, according to the report, BT is also holding similar talks with One2One PLC.

          BT spent 4.03 billion pounds ($US5.71 billion) on buying its UK 3G spectrum licence last year, while Vodafone paid 5.96 billion pounds for its 3G licence. One2One secured its U.K. 3G licence for 4 billion pounds.

          In February, BT reported that its third quarter, ending Dec. 31, 2000, brought a net debt of 19.1 billion pounds, and that it expected its net debt to increase to a total of 30 billion pounds by the end of its fiscal year.

          BT's top two executives, Chief Executive Sir Peter Bonfield and Chairman Sir Iain Vallance, have been under intense pressure to relinquish their jobs in exchange for 10 billion pounds which the company is trying to raise from the UK financial community through a rights issue. Over the past year, BT shares have lost over 66%of their value on the London Stock Exchange and haven't fared much better on the New York Stock Exchange (NYSE).

          In early morning trading on the NYSE, BT was trading at $US70.40 per share, a loss of $3.90 per share or 5.52%. That is well below its 52-week high of $223.50 per share, but close to its 52-week low of $67 per share.

          BT and Vodafone stand to save up to 2 billion pounds over 10 years if they can forge an agreement over 3G, the Observer said.

          In a press conference last month, Vodafone Chief Executive Chris Gent warned that 3G won't have any "major impact" on the market until 2003-2004, though he stressed that Vodafone is still very enthusiastic about the prospect of new mobile telecommunications technologies, including 3G services.

          Gent added that by the third quarter of this year, the company plans to launch its 3G network through its subsidiary, AirTel Movil SA which is also Spain's second-biggest mobile operator and that other Vodafone markets will begin launching 3G networks in 2002.

          Gent also recently met with U.K. Chancellor of the Exchequer Gordon Brown to complain about the high costs of 3G, in particular the cost of the licences which netted the U.K. government 22.48 billion pounds, money that it's now using to pay down its national debt. It has been widely reported in local media that Gent told Brown that Vodafone spent six times more than it had intended to pay for the 3G licence and asked Brown to relax current rules so that the telecommunications companies too can increase tariffs.

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