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3G auction frenzy ebbs

Singapore sends the strongest signals yet that the frenzy that drove the price of third-generation telephone licenses into the billion-dollar stratosphere is now over.

Singapore has sent the strongest signals yet that the frenzy that drove the price of third-generation telephone licenses into the billion-dollar stratosphere is now over.

Singapore, one of the most cell phone-crazed nations in the world, announced Wednesday it is canceling its auction of the licenses needed to operate the next generation of phone service. The reason? It had four licenses to auction, but only attracted three bidders.

This is bad news all around for consumers and phone companies, analysts say. These same telecommunications companies that spent so much on these licenses in Europe and Asia aren't looking to expand into other nations, they say.

"The barrier to (some) third-generation service, which was once viewed as simply the 110 meter hurdle, is now more like the pole vault," said Bryan Prohm, an analyst with Gartner Dataquest.

Third-generation, or 3G, wireless technologies are expected to enable high-speed, always-on Internet connections for a number of devices including mobile phones, handheld computers and laptops within the next few years. Estimates vary as to exactly when 3G systems will be readily available, but most analysts expect the new technology to be well received once it debuts.

The cash crunch that kept the same telecommunications companies out of Singapore could also mean delays in service launches elsewhere, analysts believe. Telecommunication companies in Japan have already announced delays in their service plans. But companies like Sprint PCS in the United States are still holding firm on ambitions to release a next-generation network by year's end.

Some American carriers are already shying away from spectrum auctions. Sprint PCS stayed out of the most recent offerings from the U.S. government. The company said it was because it already had a digital network in place and expected to have enough bandwidth to last another decade.

IDC analyst Shiv Bhakshi said that many of the license winners in Europe and Asia spent billions on licenses, but don't seem to have a plan for deploying a network.

"They get lots of spectrum but don't know what to do with it," he said. "What is happening is that all other people who are auctioning licenses will either have to do it cheaply, or cancel it until conditions improve."

Shot across the bow
On Wednesday, Moody's Investors Service dropped another bombshell on the telephone industry in the hours before the Singapore government canceled its auction.

In a scathing report, Moody's wrote that "Cash-flow generation from investments in UMTS (a version of 3G wireless technology) is very uncertain, both in terms of amounts and timing."

"The break-even point is not likely to be reached before the fourth or fifth year of operation in even the most optimistic scenario."

The news out of Singapore Wednesday was expected, although it still caught some by surprise. Singapore is considered a good barometer of the success of third-generation telephone service. Its government has made attracting foreign investment a priority and it has also been pushing to get out of the shadow of Hong Kong and emerge as another Pacific Rim powerhouse.

The government, hoping to reap the same billion-dollar license frenzy in Europe, had more modest expectations of about a half billion in revenue. It tried to ensure success by even slashing the opening bid levels to $65 million and extending the time that license winners would have to unveil a network by another year.