Devil's Advocate: "I can't believe these 3G apologists..."

The 3G licence auctions have been blamed for many telcos' woes, the general tech downturn, even the broader economic slump. Should we shed a tear? No way, says Martin Brampton&

Amazingly some people think we ought to be feeling sorry for the poor old mobile operators. They were offered 3G licences in a public auction and chose to pay a lot of money for them. Now the economic climate is less optimistic, some think the government should give them back some of the money. How extraordinary!

The European Commission has generously decided that giving refunds will not be regarded as undermining competition. Although, when governments give money to businesses that is in principle an anti-competitive move, in this case Europe will turn a blind eye. Governments are not obliged to do anything, which is just as well, given that the Commission is not offering to come up with the cash. It is easy to be generous with other people's money.

Auctions are used for all kinds of things and are often considered the best way to establish a price for something unusual. Highly individual properties are often auctioned, as the common process of setting the price by reference to sales of similar properties does not work. If you buy a house at auction, the sale is committed the instant the auctioneer's hammer falls. Are you allowed to go back a few years later, point out that the housing market has fallen, your finances have worsened, and ask for some of the money back? Er, no.

It is often argued, especially by businesses themselves, that government should not interfere with the running of the commercial sector. So why ever should the government even consider handing back part of the price of a purchase freely committed by commercial organisations? Nobody forced them to bid for the 3G licences, did they?

Or is it that something entirely unpredictable has happened, so that the usual principles should be set aside? Hardly. The outcome was all too predictable and was indeed predicted by many analysts at the time. When the 3G licences came up for auction, all kinds of wild schemes were being advocated. The mobile operators would be able to offer 'value added services' that would provide a handsome return on the investment.

The more down to earth commentators pointed out that telephone companies have a severely limited range of competencies and are generally very poor at diversifying into new areas. Most of the touted money making schemes were highly fanciful. Whenever I heard of the self-restocking refrigerator, I knew that people were desperate for ideas. And the whole concept of location dependent advertising is unproven.

Another issue was the cost of the 3G infrastructure, about the same again as the licences. Should this have come as a surprise to the operators, who are in regular contact with the equipment vendors? Even the crudest back-of-an-envelope calculation showed that the combination of licence and infrastructure costs would mean 3G had to be sold either to an extremely large market, or at premium prices. It was never obvious how either would be achieved.

Maybe we should sympathise with the companies over unexpected changes in the economy? The trouble with that argument is that most of us have to depend on invested money if we are to have any income in old age. The pension funds own the majority of quoted shares and their time horizons need to span decades. Are commercial companies now saying they are incapable of financial planning that goes forward a few years, let alone decades?

Is the argument that we should bale out the operators so they can thrive and pay more taxes in the future? Now surely that argument depends on the assumption that given a useful sum of money, the companies will be able to invest it profitably and manage their businesses well. But if all that were true, they wouldn't have got into this mess in the first place, would they? The auction was a commercial transaction and there are rarely good reasons to unpick a transaction once made.

** Martin Brampton is a director and founder of Black Sheep Research (www.black-sheep-research.co.uk ), an independent consultancy providing research, writing and speaking services on a wide range of business and technology subjects. Martin was previously a director at Bloor Research, and has worked with IT as a user and analyst for over 20 years. He is a frequent contributor to silicon.com's Behind the Headlines TV programme and can be contacted at silicon@black-sheep-research.co.uk .