Telefonica abandons Germany as 3G hopes collapse
Telefonica SA has frozen the operations of its mobile subsidiaries in Europe in a move that confirms the collapse of hopes that 3G services will be a huge money-spinner. It is writing off 4.8bn euros ($4.8bn) from the value of assets and associated restructuring operations in what is likely to be a prelude to a fire sale of its subsidiaries in Austria, Germany, Italy and Switzerland.
Finnish Incumbent Sonera Corp, which is Telefonica's partner in Group 3G UMTS GmbH in Germany and Ipse 2000 in Italy, has also written off its entire investment worth 4.2bn euros ($4.2bn).
It said the board of Group 3G has decided to halt the company's current business operations. This is a consequence of its recent experiences in the German mobile market, the increased cost of capital, and the technology delay in the roll-out of 3G.
The decision will increase uncertainty in the whole sector. While it could remove competitors, the big danger feared by operators like T-Mobile in Germany is that the company's assets will be snapped up at bargain rates by companies who can compete on a far lower cost base than those who paid the full cost of 3G licenses.
Telefonica's shares leapt 14% to 9.50 euros ($9.50) on the news because it is regarded as the end to an adventure that would lead to huge financial pain.
Though Telefonica would only confirm the suspension of its mobile operations in Germany, the company is expected to part company before long with its European cellular operations to concentrate on its home market and Latin America.
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