There was once a group of CEOs who got so excited about the prospects for data communications over wireless links that they paid stupid amounts of money to buy spectrum.
In order to recoup the stupid amounts of money, the CEOs then charged customers so much money for data traffic that hardly anyone used data services.
Then the CEOs decided that, to encourage people to use data services, they would give customers unlimited data usage in return for a set fee.
People then used so much data that the networks became clogged with traffic and wouldn't work properly.
MORAL: Only really stupid people get to be CEOs of wireless network operators.
There are 4 redundant words in your moral
And i think I can guess which ones they are, Dr Bob
au contraire !
Hindsight is a great place to look from..compared to foresight, which is all about making risky predictions, especially about the future:-)
Sure the CEO should have built checks (high and low water marks) to guard against under and over utilization of his spectrum. He should have factored in the risks in both cases and come with pricing policies that would save his a*** in any case. Heck, he should have leveraged PE on the entire thing so that passing the buck in case of failure is easy. In that sense, I agree with your assessment - he was stupid.
But could he have got the arithmetic right in terms of customer behavior? Could he have designed the perfect payment model, single-handed? Could he have bought the spectrum at a cheaper price in the first place? Could he not have got killer-apps invented that would compel people to use more and more bandwidth? No, I think he was brave, and like most brave people, he was a bit stupid. And mighty unlucky.
Looking at the relative business state of major European mobile networks and European semiconductor companies I know which I'd rather be running :-)
Were they stupid or were they put in an impossible situation by government? The government set up an auction that forced them to spend to their limit on spectrum licenses or get out of the cellphone business. This sucked the profitability out the business and delayed the ability to equip the networks. It was a £22.5Bn tax on high tech industry in the UK alone which cost everyone involved in the supply chain money and thew away the lead from GSM letting the US and Asia catch up.
Compare this £22.5Bn tax with the £250M that Mandelson is proposing to 'invest' in high tech industry.
Ask yourself why banks aren't forced to bid against each other in similar auctions for their banking licences. Surely a licence to create money through fractional reserve banking is just as much in the gift of the state as access to RF spectrum. It would soon take the excess salaries out of the banking sector if banks were forced to bid against each other for a license to stay in business.
It will never happen and one of the reasons is that the senior managers in our business are too stupid - or perhaps too honourable - to spend sufficient effort on lobbying and manipulating government.
IMHO, Tom, the network operators were victims of hubris. They had succeeded in everything they had done and anyone who saw them at that time realised they thought they could do no wrong. So I'm sure HMG saw them coming, all puffed-up with their success, and the government got a university professor, I think from East Anglia, who was an expert on games theory, to figure out a bidding sysytem which would play to the operators' machismo. The operators then lost their heads bidding eachother up to absurd levels. As for getting bankers to bid for licenses, that would have been a great idea a couple of hundred years ago, but I think it's too late to do it now. It is clear that investment banking should be separated from deposit-taking, business-investing, mortgage-providing, High Street-type banking - with only the latter type of bank guaranteed by the State - but the UK government seems reluctant to enforce that split. To my mind, it's directing R&D at the right things, making that R&D available to entrepreneurs, and making it easy for entrepreneurs to set up companies that should be the correct focus of the likes of Lord Mandy.
Sorry, but I think Cheese is right more than you, and somewhat with Tom.
The carriers didn't really have much choice: not bidding would be admitting your business had no future, you had no ambition, your company had no possibility for new products...
You can see the trouble that T-Mobile in USA is in with no possibility of launching LTE. There were a few carriers who avoided the licenses (Bouygues in France is the only one I can think of) - but not many.
I disagree with Tom: what is wrong with governments auctioning off assets owned by the nation to get money for tax-payers?
If they owned land you'd want them to auction it - not just give it cheap to Tesco or whoever else was in favour. Why should spectrum be different?
Auctions are open & honest & raise money for the rest of us: far better than the alternatives, which border on corrupt.
Well, El Rupester, could not Vodafone et al have pulled out of the bidding in the expectation of buying a licence off whoever won one? To go into an auction with the intention of buying whatever the price seems daft. Meanwhile GSM enhancement technologies would have carried the operators through for most of the subsequent decade. In most places that's all you get anyway.
Why not pull out of bidding & buy the license?
Presumably because whoever did buy the license would expect to make a profit, so it would cost Voda etc even more.
As it is, the operators all seem to be doing pretty well out of 3G - certainly reported cashflow are pretty impressive. So I'm not sure this was such a bad deal - for the companies or for the taxpayer.
Yes, it took time - but infrastructure does.
(Ever read about the finances of the railway companies in 1850s?)
The problem with the spectrum licence auctions was that they took £22.5Bn - in the UK alone and probably getting on for £100Bn in EU/US combined - away from a high tech, high growth industry with a future and spent it on the stuff that government likes - benefits, higher pay for GPs and teachers, lawyer fees for human rights, quangos etc etc. That money should have gone on the equipment and R&D to deploy 3G networks. That money should have been driving up salaries in tech companies not driving up salaries in the public sector.
The result was Europe lost its lead in mobile technologies, a lot of good engineers were made redundant and we are now buying our cellphones from Apple, Samsung and LG and our network equipment from Hauwei. And a doctor in the UK can make at least 2x what an electronic engineer makes where a doctor in India makes significantly less.
The point is that government in the UK fundamentally does not care about high tech companies or engineers: we have zero influence with government compared with other industries and professions and it affects our standard of living relative to other professions.
Sadly Tom I think you're absolutely right. These were indeed the consequences of the absurd amounts spend at the 3G spectrum auction. In other words the consequences of the folly of the operators' CEOs. If those CEOs had been engineers, they would have been more llikely to have worked out what the government was trying to do in the auction and come up with a way to counter it. As it was they blundered into the bidding process without understanding it and got skinned, with the terrible results you describe. All the more reason for having savvy CEOs, not marketing men, running these companies.
Good point, El Rupester, although I read this week that the operators were delaying 4G investments until they'd got a return on their 3G investments. Interesting parallel with the railways - I gather that infratructure investment was a frenzy of speculation - some wise and lucrative, some foolish and ruinous. And some crooked! I suppose there are the wise, the fools and the knaves in any age. Just a question of figuring out which is which.
Tom
This might be too late on to matter any more, but even so.
First, I disagree with your underlying logic. Even if the money saved were for a good cause, that is not a reason for governments to give public assets away for free to their friends. That is horribly corrupt way to do things.
Your logic would suggest that 'deserving companies' should not pay tax, or could build offices without paying for the land.
I would argue that the proper, fair, way to do things is to sell things for what they are worth. If governments want to encourage things then they do that openly with grants, rebates or explicit subsidy - not by sweetheart favours.
Secondly, I disagree with you about the consequences. Suppose Voda had not bought the license: do you really think their purchasing decisions would be different?
"Because we didn't pay £7bn we will not offer the iPhone"
"If we paid for our license we'd buy better equipment, but now we have more money we will chose to over pay"
Europe is strong in wireless: Nokia, Ericsson are the leaders; ALU, NSN are strong; ARM, ST-Ericsson, NXP, CSR all matter hugely.
I don't see why the licenses mean that Qualcomm or Apple would not be major players.