The third generation game

By THIS IS MONEY
Updated:

 

WHEN BT splits with Wireless and only takes £500m debt, who will own the third generation (3G) mobile technology licences that BT shareholders paid for? Or are they going to be given as a leaving present to the hard-up directors? KS, Wallington, Surrey.

NatWest Stockbrokers analyst Scott Penrose says: When BT demerges its Wireless arm on 19 November, the rights to the 3G licences clearly go with BT Wireless (or mm02 as it will be rebranded). However, it's not correct to assume that because the licences cost billions of pounds and BT has assigned just £500m of debt to mm02, the licences have been given as a gift to mm02.

The cost of the licences was paid before the demerger so the old BT will have taken it onto its books. The amount of debt assigned to mm02 is not related to the cost of the 3G licences. If BT were to overload mm02 with debt, its share price would be lower at launch and it would not be able to finance the billions of pounds of capital investment required to build the 3G networks.

BT shareholders are being given shares in mm02 so they will be able to share in mm02's potential. At the same time BT will not have the burden of funding the 3G capital expenditure on its balance sheet.

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