FOCUS: Vodafone, 3 Mull Cheaper 3G Technology In Sweden"

STOCKHOLM -(Dow Jones)- Vodafone Group PLC (VOD) and Hutchison Whampoa Ltd. (0013.HK) are considering a different technology to complete the rollout of their Swedish third-generation wireless networks, potentially reaping large cost savings.

The move comes after Sweden's telecommunications regulator indicated Monday it will allow the companies to employ a cheaper technology to the one they're using now, providing it doesn't hurt the quality of the 3G service.

The operators are currently building 3G networks based on the wideband code division multiple access, or WCDMA, standard. The regulator's shift in stance, though, means they could use a rival technology, called code division multiple access, or CDMA, in the 450 megahertz frequency.

The signals in the 450 MHz band travel greater distances than in the frequencies used for WCDMA, making it more cost-efficient for less built-up areas, and meaning equipment investment is lower than for other 3G technology.

The regulator's decision is "very positive," said Elisabet Ohlsson, regulatory and legal director at Vodafone Sweden. "We are considering alternatives and one is to use CDMA," she added. She declined to give further details.

Privately-held Nordisk Mobiltelefon is constructing a 3G CDMA network for the 450 MHz band in Sweden and says Hutchison and Vodafone could save a combined SEK3 billion if they use its network rather than expand their own.

Cutting costs has become increasingly important as the Swedish wireless market has become fiercely competitive, and overall industry revenues are no longer growing.

Nordisk Chief Executive Arnfinn Roeste said his company is negotiating with Vodafone and Hutchison about them using the CDMA network as service providers.

The company would need to beef up the capability of its network to ensure there is no drop in service quality for Vodafone and Hutchison. "We have been offered compensation for this," Roeste said.

He puts the extra cost for Nordisk at around SEK200 million to SEK400 million, but noted this is a small price when set against the savings Vodafone and Hutchison would make from not having to build more of their own networks.

Roeste estimates Vodafone could save up to SEK1.5 billion, Hutchison as much as SEK2 billion.

Hutchison spokesman Erik Hoernfelt confirmed his company is negotiating with Nordisk. The company sells services under the '3' brand in Sweden through Hi3G Access AB, which it owns jointly with Investor AB (INVE-B.SK).

Vodafone and Hutchison are cooperating on building a 3G network in areas outside major cities. Hoernfelt said the two need an additional 2,000 base stations at a cost of about SEK2 billion to comply with the 3G license conditions.

Under the terms of the license, operators have to ensure that 8.86 million people, or 98% of the population, can receive 3G services, which allow music, video and information to be sent at high speed to mobile phones.

According to Hutchison's estimates, one base station in the CDMA 450 MHz network could replace 15 WCDMA base stations in rural areas. A base station connects a call to the regular landline phone system.

The regulator, known as PTS, will decide by August whether to allow Vodafone and Hutchison to use CDMA after saying Monday it will give them a chance to show the technology doesn't hit quality.

When it issued the 3G licenses in December 2000, the regulator had specified the operators should use the WCDMA technology.

One issue the regulator will have to consider is the absence of handsets that work on both the CDMA and WCDMA networks. That means customers could have one number but would need two phones.

Rival operator TeliaSonera AB (TLSN.SK), which is building a WCDMA-based 3G network with Tele2 AB (TEL2-B.SK), said it is disappointed by the regulator's decision.

"We are very upset PTS cannot make up its mind," said Tommy Ljunggren, head of mobile telephony at TeliaSonera in Sweden. Ljunggren said PTS previously had made it clear it wouldn't change the license conditions.

TeliaSonera and Tele2 have been aggressively building their network and plan to spend several hundred million kronor this summer. Should PTS decide to change the rules at a meeting in August, that money may have been spent unnecessarily, Ljunggren said.

"It would also mean the new player is subsidized," he said referring to the money that other operators such as Hutchison and Vodafone would pay for the construction of the new network.

Marianne Treschow, director general of the PTS regulator, said that when technology evolves it is "important to have the full picture." The regulator "will not allow any deterioration in the service" even if it allows changes to the license conditions, she said.

She noted that PTS has previously made one alteration to the conditions for 3G operators, allowing them to cut the level of investment in infrastructure.

Company Web sites: http://www.vodafone.com

http://www.tre.se

http://www.teliasonera.com

-By Magnus Hansson, Dow Jones Newswires;+46 8 545 130 91, magnus.hansson@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 14th June 2005