Telecom's 3G gamble looks dicey

By PETER GRIFFIN

Telecom's A$400 million ($461 million) bet on third-generation mobile success is under mounting pressure with Australian giant Telstra said to be finalising plans to build a rival high-speed network relatively cheaply.

Telecom last year took 19.9 per cent in Hutchison 3G, a joint venture with Hutchison Telecommunications Australia, in a move analysts immediately questioned.

While Telecom's investment is capped, Hutchison's plans to spend $3 billion in the next five years commercialising its "pure 3G" network look flaky against likely strong competition from Telstra, Australia's other CDMA network operator.

Marshall Towe, head of Southeast Asian operations for 3G chipset and software developer Qualcomm, told journalists visiting the 3G World Congress in Hong Kong last week that Telstra could upgrade its network base stations to handle high-speed 3G services for A$100 million.

Paul Richardson, a telecoms analyst at UBS Warburg, believed that figure to be accurate, although the cost of a complete national upgrade to the faster CDMA1X network might be nearer A$300 million.

Telstra Mobile's group manager of core products and platforms, Greg Young, said Telstra had looked at CDMA1X and W-CDMA but still had yet to settle on a technology. He declined to give a figure to launch a 3G network, but said the number mentioned was on the low side.

The technical characteristics of CDMA1X, however, would make it significantly cheaper than Hutchison's wideband CDMA-based technology.

The cost of a network deployment would depend on the data transmission speeds Telstra was looking to offer, the capacity the network would support and whether a staggered or national start-up was pursued.

Either way, say analysts, Telstra's large mobile customer base and its stronger retail presence will make life difficult for Hutchison, even if it is first to introduce 3G.

Richardson said: "It has to be the slam bang of all time really to get some return in the short term. No matter how well [Telecom's] New Zealand mobile business is doing, there's not going to be any kind of improvement to offset the A$400 million they've spent on Hutchison 3G."

Telecom Mobile spokeswoman Linda Sanders said Telstra would face a bigger task upgrading its network to 3G than Telecom did as Telecom had a more sophisticated, packet-based CDMA network.

"We believe we will have a big advantage over Vodafone in New Zealand and a much more compelling offering to customers than Telstra will be able to achieve because of our relationship with Hutchison."

Overall, Telecom's performance in Australia continues to disappoint the market.

Credit rating agency Moody's yesterday cut its rating to A2, citing its "problematic" Australian investment, AAPT.


* Peter Griffin visited the 3G World Congress in Hong Kong as a guest of Qualcomm.