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Wednesday, July 19, 2006

Scandinavian 3G Torture

A fascinating glimpse of the economics of standalone 3G operations is given early on in every quarter with the publication of the giant Swedish fund manager Investor AB results: Investor hold 40% of 3 Scandinavia. 3 Scandinavia launched 3G operations in Sweden and Denmark back in 2003 and have a licence in Norway, but as far as I aware the Norwegian company is currently dormant and has no launch date.

Although InvestorAB report cash calls and funding to the operations in the quarter they were made, the actual P&L is delayed by three months.For the 6 months from 1/10/05 to 31/03/06, 3 Scandinavia reported revenue of SEK1,040 and Operating Losses of SEK1,580. In other words losses are still greater than revenues. In the first 6 months, Investor provided funding of SEK770m with cumulative funding of SEK3,733m. This means the overall venture required US$262m of funding in the first six months and US$1.27bn overall. This is before the big build out and launch in Norway. The spectrum cost in Sweden was free, US$118m in Denmark and US$10m in Norway. Investor hold 3 Scandinavia at a value of SEK866m in its’ books which is currently a pretty poor return on its’ investment.

Investor are forecasting that 3 Scandinavia will be break-end by 2008. Personally, I do think Investor and H3G UK may try and make an exit before then - more potential consolidation. I think the whole episode of 3 in Scandinavia highlights:

  • how difficult it is to launch new operations into a highly penetrated market;
  • the funding requirements for launching a new wireless services extend for a long time beyond the spectrum acquisition and network build;
  • if this is the situation in Scandinavia can you imagine the horror in the UK; and most importantly
  • if you were a Wimax licence holder would you be thinking of launching service into these markets?