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Monday, 3 July, 2000, 15:22 GMT 16:22 UK
Phone auctions left on hold
gavel hitting phone
Mobile phone licences are going under the hammer
By BBC News Online internet reporter Mark Ward

Mobile phone companies are deserting Germany's impending auction over fears that buying a licence will prove too costly.

Three companies have withdrawn from the German auction of spectrum for new third generation mobile phone services due to take place at the end of July.

The new licenses will allow mobile phones to offer high-speed internet services and video on demand.

The reluctance of companies to run up multi-billion pound debts to buy licences may threaten the remaining European auctions.

Now companies wanting to bid for domestic wireless licences in the UK who are protesting about plans to auction off their licences too.

License losses

Last month WorldCom and Vivendi withdrew from the German mobile phone auction citing the potentially enormous cost of buying a licence as the reason for their withdrawal.

The UK third generation mobile phone auction raised over 22.4 billion and the German sale is expected to raise much more.

This week Talkline, a joint venture between the US regional phone company SBC Communications and Teledanmark, has pulled out saying it too was worried about paying too much for a licence.

The German auction will take place at the end of the month and competition is expected to be fierce because licences are being sold off in regional blocks.

Companies keen to snap up licences for the biggest conurbations will have to bid high several times to be sure they get what they want.

Credit crash

The reluctance to take part in the German auction may spell trouble for other countries keen to cash in on future phone networks.

"Governments argue that auctions assign the true economic value to the licences," said Andy Peck, e-business consultant at The Smith Group and author of a report into auctions.

"It must be harmful to the industry in the medium term if you are putting a huge tax on the industry from day one," he said, "It will always be playing catch up."

European mobile phone auctions

He said there was a danger that the consumer would end up paying the bill in higher handset and service costs.

European mobile phone beauty contests

In all, 13 European countries are planning to auction licences for future mobile phone networks known as Universal Mobile Telecommunications Services (UMTS).

Any company wanting to set up its own pan-European UMTS network will have to be prepared to spend tens of billions just to win licences.

Already the credit ratings of telecommunications companies have been downgraded because of the potential burden this debt would carry.

BT, Vodafone, Deutsche Telekom, France Telecom and KPN have all seen their credit ratings fall.

Credit rating firm Standard and Poor has already issued warnings. One said: "There is substantial uncertainty about the future level of demand for mobile data services and, therefore, the future profitability and cash generating ability of UMTS networks."

Not all countries are selling the licences to the highest bidder. Some, like France, are holding a beauty contest that gives licences to companies with the best technology or service ideas.

New UK auction

The UK is now extending the idea of auctions to other radio frequencies. Now it is planning to auction licences for the wireless connections between telephone exchanges and homes.

The companies wanting to offer these services are protesting to the government about the auction, saying it is the wrong way to kick start the market.

The firms claim that they are too small to bear the burden of debt that an auction might bring with it.

"We don't think this embryonic technology should have the same sort of auction as UMTS," said Stephen Lowe, chairman of the Broadband Wireless Association (BWA) that is leading the protests.

The BWA, the Telecommunicaitons Managers Association and the Telecommunications Users Association want the auction process to be done differently.

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See also:

28 Jun 00 | Business
EU blocks telecom merger
23 Jun 00 | Business
Telecoms scramble for cash
09 Apr 00 | Business
20bn windfall from phone auction
06 Jun 00 | Business
France rejects phone auction
16 May 00 | Business
Germany set for windfalls
08 May 00 | Business
Legal threat to mobile auction
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