Telecoms relief as auctions flop

Shares in phone companies appear to be on the up

The feverish excitement which has gripped the telecoms sector for much of this year appears to be subsiding - at least as far as the prospect of governments profiting from the fever is concerned.

The year began with strong demand for third generation mobile phone licences across Europe as phone companies borrowed hand over fist to buy licences which would allow them to operate new services such as video-on-demand over mobile phones.

But in recent auctions, telecom companies have had to pay out far less than expected for the new licences.

This news - combined with healthy results from Vodafone and Cable & Wireless - appears to have provided some welcome relief for telecom shares, as many investors had questioned whether the telecom company's expensive 3G gambles would pay off.

Following months of underperformance, some analysts appear to have turned positive on the technology and telecoms sectors.

"These markets are practically impossible to call. But yesterday there was a sea-change with Vodafone's figures. It's fair to say that Vodafone is key to the sector which is key to the whole market right now," said one senior equity salesman.

Telecom and tech shares helped the market higher, taking their inspiration from healthy gains on the US markets overnight.

The FTSE 100 index was 19.4 points higher at 6,432.2 points with Cable & Wireless rising 37 pence to 887 pence.

Mergers

Part of the reason for the turnaround in shares is the drop in spending on 3G licence auctions.

Some telecom companies had seen their credit ratings drop as they borrowed heavily to finance pricey auctions in countries like Britian and Germany.

But on Monday, the Swiss Federal Communications Office postponed its auction of third generation licences as the number of bidders matched the number of licences on offer.

The Swiss decision was prompted by news that some of the bidders were merging.

Danish operator Tele Danmark is to take over two of the proposed bidders, Sunrise and Diax.

This brings the number of firms bidding for the licences down from an original nine to four. Given there are only four licences on offer, the Swiss authorities wanted time out to decide how they should proceed.

While the remaining candidates wish to pay the minimum price of $29m, the Swiss authorities still hope to make as much money as other European Treasuries - blessed with strong competition for their licences - did.

The UK and German governments netted $35bn (£22bn) and $46.1bn respectively.

The Swiss office is expected to announce its next move in December.

After two days of bidding the Italian auction was over, leaving the government with less than half of the money it had hoped to raise.

Conflict within the BT-led Blu consortium prompted it to withdraw from the auction, leaving five licences for five bidders.