XFERA: WHAT´S A FAIR PRICE.
THE CASE OF SPAIN´S 4th UMTS LICENSE
Francisco J. López Lubián & Ignacio de la Torre
Instituto de Empresa
The Xfera case is intended to create discussion on advanced valuation techniques applicable to a complex start-up, operating within the UMTS spectrum. The case also provides material for controversy by inserting quotations based on interviews with shareholders and former managers of the company. Ultimately, apart from helping a student to master the art of valuation at an advanced level, it aims to develop discussion from a social angle of the consequences of unrealistic valuations, given that they can result in a broad economic crisis and, ultimately, many people losing a job.
John Silverman, VS´ telecom equity research analyst was studying the whole process of bidding and allocation of European UMTS licenses, which had taken place during the year 2000. Silverman´s boss, James Mackenzie, had asked John to write a report on valuation pitfalls that occurred in said process. He decided to focus on a specific example: Xfera, and the case of Spain, where the bidding process used the beauty contest format rather than that of auction.
Thinking about the report he was about to write and taking into consideration all the information about the company, he wondered what might have caused the huge differentials between expectations, realities and the assumptions that never materialized. Were those assumptions realistic at any point in time? Was risk well assessed? Were valuation mistakes the result of psychological factors? Was the credit crunch that impacted the economy during 2001-2002 the driving force behind the differences in valuation? Again, John challenged himself to ask the key question: What went wrong?
This case was prepared by Francisco J. López Lubián and Ignacio de la Torre, Instituto de Empresa, Madrid, and is intended to be used for class discussion rather than to illustrate either effective or ineffective handling of the situation.
Presented to an accepted by the North American Case Research Association (NACRA) for its annual meeting, November 2003, Tampa, Florida. All rights reserved to the authors and NACRA. © 2003 by Francisco J. López Lubián and Ignacio de la Torre.