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I think the EU is shooting itself in the foot by allowing this crazy bidding for 3G licenses. I am afraid that they risk more than discouraging the introduction of new technologies. I am afraid that they are putting the future profitability of 3G service providers at risk with these exorbitant license fees.

Based on the recent German 3G auction, I did a quick calculation of the cost per subscriber of the 3G license fees in Germany.

Assuming that
1. penetration rates remain the same in Germany as a result of saturation, and
2. 100% of cellular customers switch to 3G contracts,
then the cost per subscriber is over USD 1,000.

If we assume that the average the average subscriber pays USD50/month for service and other fees, then the pay back for the license fee alone is 20 months. This does not consider any amortization of infrastructure expenses, operating costs, or overhead. If we assume that these costs are USD500 per subscriber, then the break even point could be 30 months or longer. Thus, these companies will need to keep a the average customer for between 2 and 3 years to begin showing a profit.

With the churn rate topping 20% in many countries, it is already a problem for cellular service providers to hold onto a customer long enough to be profitable. Service providers seem intent on adding new customers rather than keeping their existing customers. Offering incentives to keep customers, may further depress revenues. This would extend the number of months to the break even point.

With the massive infrastructure investment that 3G will require, it would appear to me that 3G in Europe is a risky investment. In fact, unless the regulators in the US and Asia take notice of this and keep licensing fee cost per subscriber much lower than they are in the UK and Germany, I believe that the outlook for 3G could be very bleak.
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