Europe's mobile phones industry was once undisputed world leader in terms of its technology and market penetration. That it is no longer, having largely ceded the position to Japan, is in no small measure down to the 3G auctions four and a half years ago
Europe's mobile phones industry was once undisputed world leader in terms of its technology and market penetration. That it is no longer, having largely ceded the position to Japan, is in no small measure down to the 3G auctions four and a half years ago, which both marked the top of the market in terms of the exaggerated exuberance of the prices paid and financially pole-axed the successful bidders. More than €100bn was raised across Europe from auctioning the licences, over half of it in Britain and Germany alone. The industry has yet to recover from the effect, and is only just beginning to get round to using the spectrum it bought.
Gordon Brown, the Chancellor, still thinks of the mobile phone auctions as one of his greatest triumphs, but in truth it was only a transfer of debt from one part of the economy to the other - from the public to the private sector - and though it was extraordinarily good for the public finances, it was disastrous for the mobile phones industry. So what on earth is Ofcom doing giving airtime to the idea of another auction, to happen under present plans at some stage next year? The industry hasn't yet recovered from the first one, isn't it a bit soon to be considering another?
On this occasion, Ofcom is at least planning to auction the spectrum on relatively enlightened terms. Unlike the 3G licences, which were set up in a way designed to minimise supply and maximise demand, thereby delivering the greatest possible proceeds to the Treasury, there are to be no restrictions on the spectrum so bought. The owner will be free to use the airspace for whatever it likes.
However, there is to be no relaxation of the strict rules governing the 3G licences, as some mobile phone companies have been demanding. In these circumstances, it seems a bit rich that more spectrum is to be auctioned so soon. Having conspired to make mobile phone operators ruinously pay through the nose for 3G - existing players had no option but to bid against each other if they wanted to stay in the game - the Government now proposes further to undermine the value of what they paid by releasing a whole new raft of spectrum on an entirely unrestricted basis.
The main mobile phone operators seemed not to know what to think about the new proposals yesterday. They welcomed Ofcom's liberalised, market-based approach, but at the same time they thought the whole thing a betrayal of the vast investment they were obliged to make in 3G. Ofcom's approach is, of course, the way it should have been done four and a half years ago. But it's too late for all that now. The Treasury's gain is the mobile phone industry's loss, as well as that of its tens of millions of customers.
As Europe's two most powerful stock exchange companies, Deutsche Börse and Euronext, battle it out for the hand of the London Stock Exchange, one thing at least is becoming clear. Both takeover bids seem virtually certain to end up before the Competition Commission.
As yet there has been no formal notification to the Office of Fair Trading by either party - the start of the consultation process with mergers that pose competition issues - but that will presumably come. There's some vague possibility that Brussels might want to claim jurisdiction over the battle, given that the ultimate intention of both contenders is to create a pan-European equities market, but that seems unlikely in view of the national sensitivities that surround the future of the world's oldest stock exchange. Instead, Brussels will have to settle for input into a UK-conducted investigation.
The main issue is simple enough, though it is complicated by the terminology of "vertical" and "horizontal" silos and the bewildering number of participating companies that contain the word "clear" somewhere in their names. As with other national bourses, the London Stock Exchange is a monopoly, so the interests of customers have to be properly protected. Furthermore, the LSE only deals with the cash trade. The after-trade services of clearing and settlement are conducted by others.
That's not the case with Deutsche Börse, which controls both the cash market for German equities and Clearstream, the clearing and settlement service for its cash market. Deutsche's chief executive, Werner Seifert, has promised to honour the LSE's existing contracts for settlement and clearing should he succeed, but there would be nothing to stop him putting those after-trade services through his own systems once these contracts come to an end.
Euroclear, which through Crest is at present responsible for LSE settlement, has already complained in precisely these terms. Should he succeed, Mr Seifert would become a monster, claims Euroclear, able to juggle the charges between the cash trade, clearing and settlement functions as he sees fit.
Yet Euroclear is not exactly impartial in this debate. Euroclear is only 3.6 per cent owned by Euronext, but it is essentially its creature. Euronext's chairman, Jean-François Theodore, sits on Euroclear's board while Euroclear is the monopoly settlement service for all four of the Euronext national exchanges. Through Crest, it is also the monopoly settlement service for the LSE. Nor is there much room for doubt about Euroclear's monopolistic instincts. In 2003, it was the subject of a complaint by customers over the way it was using its monopoly of settlement revenue to subsidise its expansion into the traditional banking market.
The ties between Euronext and its clearing house, LCH.Clearnet, are even stronger; Euronext owns nearly 25 per cent of the company. All Clear now? Oh never mind. The point is that there is a large element of the pot calling the kettle black in all this. Euronext is almost as much of a vertical silo as Deutsche Börse, and so is the LSE. The only difference is that neither Euronext or the LSE directly own the whole shebang. True, they could switch their settlement and clearing services to someone else, but since the only other provider of these services is Deutsche Börse, the whole argument seems a bit of a nonsense.
Nonetheless, there's easily enough doubt and customer concern here for the Office of Fair Trading to refer. Given the politics, the Government wouldn't in any case want to clear the bidders without first going through a Competition Commission investigation. These are deep waters, and the danger of monopoly outweighing the benefit of the larger pools of liquidity that pan-European trading would create are all too obvious. There's also a rather wider concern. The auction being encouraged by the LSE virtually guarantees that the winner will end up paying a ruinous price, the more so as the prize - domination of European equity trading - is so great. A debt-laden stock exchange will benefit no one, as whoever wins will be forced to jack up charges to recoup costs.
Customer interests could of course be protected, through price regulation and adequate representation, but is this really a price worth paying? Deep and muddy waters indeed.
Relief all round yesterday, as Justin King, the still newish man in the hotseat at J Sainsbury, unveiled a Christmas update which, though bad, wasn't nearly as bad as it might have been. It's still too early to speak of green shoots, but at least the winter in the supermarket group's fortunes hasn't got any worse and there are one or two encouraging signs. Mr King seems to have largely halted the fall in like-for-like sales, and the company's distribution problems are on the mend.
Yet the cost to the bottom line is still extreme. To stop sales falling further, Sainsbury's has had to slash prices and increase costs sharply. The upshot is that Sainsbury's will struggle to make £250m this financial year, against an expected £2bn from Tesco. That means less money for investment, less money for expansion. The virtuous circle of lower prices and growing sales that Tesco has achieved is still for Sainsbury's a million miles away. So is Sainsbury's about to fall to private equity? That depends on the family, which has still fully to come to terms with their company's fall from grace.Reuse content