Three-way alliance to bid for Europe's 3G market

Japan's NTT DoCoMo, the Netherlands' Royal KPN NV and Hong Kong-based Hutchison Whampoa agreed to join forces yesterday to compete for third-generation (3G) mobile phone service licences in four European countries, starting with the UK, then Germany, France and Belgium.

3G refers to new wireless technology that enables faster and more advanced internet services. It promises to make the internet widely available through mobile phones and other handheld devices.

The move could save Asia's two main wireless operators billions of dollars they might have spent in bids to conquer Europe's wireless market. Fourteen European countries are set to distribute licences for the next generation of high-speed wireless network services. Since the UK's recent 3G licence auction, in which five companies paid a staggering 22.48 billion pounds, or $US34.07 billion, for licensing rights, carriers have begun to question how they will recoup the enormous cost of obtaining the licences.

To kick off the relationship, DoCoMo, pioneer of the "i-mode" internet-enabled mobile phone service, and KPN, the largest Dutch phone company, said they will spend about $3.2 billion to buy 35 per cent of Hutchison Whampoa's stake in Hutchison UK 3G Holdings. The holding company is made up of Hutchison Whampoa and Canada's Telesystem International Wireless (TIWI). Together they paid 4.38 billion pounds, or $6.64 billion, for the UK licence this year.

DoCoMo would pay 1.2 billion pounds for 20 per cent of the Hutchison stake, and KPN Mobile would pay 900 million pounds for a 15 per cent stake. But the deal allows DoCoMo to indirectly own more than 20 per cent of 3G Holdings because it owns 15 per cent of KPN mobile. DoCoMo also owns 19 per cent of Hutchison's Hong Kong mobile phone company, Hutchison Telephone.

In Germany, Hutchison and KPN Mobile would form a consortium, to be called E-Plus, to bid in the German version of 3G licence auction, which is expected to begin at the end of July.

Deflecting criticism for already paying too much for its UK licence, Hutchison Whampoa chairman Li Ka-Shing emphasised the importance of the new partnership, saying that the "biggest benefit from this is that my chances of getting the licence and building a network quickly in Germany are higher".

Li said the money gained from the sale would be poured back into further development of its telecom businesses. He added that by partnering with KPN and DoCoMo, the company hopes to reduce its German 3G development costs by 40 to 50 per cent.

Keiji Tachikawa, president of NTT DoCoMo, said in a Tokyo press conference, "We are pretty much set for the European market," though he added that DoCoMo is still interested in a joint venture with an Italian operator. "Now we cover all the major European markets through our joint ventures," he added.

DoCoMo said it has not decided whether to enter the bidding process for France's 3G licence or use its KPN-Hutchison alliance. The French government plans to sell five licences for a fixed total price of $19 billion. In Belgium, KPN and Hutchison will bid together for the 3G licence. In both countries, Hutchison and KPN Mobile plan to find a local partner for the operation.

In a separate development, DoCoMo declined to comment on a report that it is interested in buying a stake in US mobile phone company VoiceStream Wireless (VSTR) , which is 19 per cent owned by Hutchison. Deutsche Telekom (DT) is also reported to be eyeing a stake in VoiceStream.

In trading, Hutchison Whampoa rose $HK5.5, or 5 per cent, to $116 in Hong Kong. In Tokyo, NTT DoCoMo rose 50,000 yen, or 1.6 per cent, to 3.17 million yen. KPN fell as much as 1.65 euros, or 3.3 per cent, to 48.25 euros in Amsterdam.

Michele M. Yamada reports from Tokyo and Joanne Lee-Young from Hong Kong.

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