Hutchison blames licence costs for E-Plus withdrawal

The sky-rocketing cost of obtaining third-generation mobile phone licences was being blamed yesterday for Hutchison Whampoa's abrupt abandonment of its partnership with German operator E-Plus.

The sky-rocketing cost of obtaining third-generation mobile phone licences was being blamed yesterday for Hutchison Whampoa's abrupt abandonment of its partnership with German operator E-Plus.

The surprise move, which came just hours after E-Plus agreed to pay £5.2bn for a German 3G licence, has revived concerns about the unproven business models behind proposed broadband wireless services. Mobile groups have committed £54bn to acquire licences in Germany and Britain.

Li Ka-shing, the billionaire tycoon who controls Hutchison, said: "I don't believe the licence price can go up endlessly." He added: "The prospect of 3G is very good but anything, even the best, should have a price in the commercial society."

Analysts, while conceding the shrewdness of the withdrawal amid what one called the "insane economics" of the industry, questioned the future of Hutchison's recently-minted partnership with KPN, the Dutch telecoms group that controls E-Plus. "Hutchison has screwed KPN," said one analyst. "It got KPN into its UK business to help spread the risk, but has bailed out in Germany and left KPN in a very difficult position."

Diederik Karstein, chief executive of KPN Mobile, said: "We do understand Hutchison's considerations with regard to the licence costs. It makes a difference if you start as a new entrant or if you have built up a position in the market as KPN Mobile did via E-Plus."

It was unclear last night how Hutchison's withdrawal would affect its planned joint licence bids with KPN Mobile in Italy, France and Switzerland. KPN Mobile will hold a conference call on Monday to explain the situation to investors.

Hutchison's relationship with KPN began last month when the latter paid £900m for a 15 per cent interest in the Hong Kong group's third-generation British universal mobile telecoms service (UMTS) licence, secured in the British auction for $4.4bn (£2.9bn). Japan's NTT DoCoMo paid £1.2bn for a 20 per cent stake and cemented a three-way pact by paying 4bn euros for a 15 per cent stake in KPN Mobile.

Germany's spectrum auction ended on Thursday with six mobile groups each winning 10 megahertz of capacity. Hutchison, which planned to share frequency with KPN's German unit, E-Plus, while operating a separate business, believed 15 megahertz was needed. Hutchison is expected to turn its attention to launching a German virtual network. This would see Hutchison market a separately branded UMTS service by renting network spectrum from one of Germany's six UMTS operators.

Analysts believe that securing UMTS licences on a world-wide basis will cost mobile companies in excess of £100bn. A similar amount will be required to build the next-generation networks and subsidise the introduction of new handsets capable of utilising the greater spectrum for high-speed internet access and other broadband applications.

In June, Ericsson, the leader in wireless network equipment, warned that industry growth may slow because of the cost mobile companies are incurring.