Wireless auction comes down to earth

More of the radio spectrum is being auctioned

By BBC News Online internet reporter Mark Ward

The Government has denied that its latest wireless auction has flopped.

The first week of the auction has seen three companies drop out of the bidding and others shun some of the regions where licences are on offer.

The lack of activity in the auction means that around half of all the licences up for grabs will be sold off.

As a result the auction is likely to earn barely a tenth of the revenue originally expected.

Starting block

This week has seen the start of the auction of Broadband Fixed Wireless licences. In all 42 licences are being sold off - 3 in each of 14 regions that the UK has been divided up into for the purposes of the sale.

At the start of the auction 10 companies lined up to bid for the licences. The winners would get the right to offer potentially lucrative high-speed wireless services to homes and businesses.

Auction entrants

Eircom

Broadnet UK

Chorus Communications

Energis Local Access

Faultbasic

Formus Communications

Norweb Telecom

The speed with which these wireless services could be set up and the the delays surrounding the roll-out of high-speed net services raised interest in the auction which was expected to raise over £1 billion for the government.

Auction drop-outs

Firstmark

Unica

Winstar

Now it looks like less than £100 million will be raised by the auction. If the auction ended today it would raise less than £40 million for government coffers.

The first week of bidding has seen three companies - Firstmark, Unica and Winstar - have withdrawn from the bidding.

Many of the regions covering lightly populated regions of the UK have yet to receive a bid from any of the companies taking part.

But a spokesman for the Department of Trade and Industry denied the sale was failing and said that it had been expecting some companies to drop out.

It's an auction," he said "companies will bid for what they can afford or drop out."

He added: "The only thing that is certain at the moment is that we will not sell every licence."

The complex rules of the auction penalise companies if they do not maintain a level of activity set by the Radiocommunications Agency.

The penalty for not putting down enough bids is a reduction in the number of licences a company can bid for. The low level of activity has led to a lot of entrants being penalised which means that the remaining companies can only bid for about half of the licences on offer. Because bids can be switched between regions it is not yet clear which regions will lose out.

In the auction for 3G licences, successive bids were faxed in to the Radiocommunications Agency which was overseeing the sale.

The fixed-wireless auction is much more complicated so the RA has set up a system that uses secure net links to accept bids.

To maintain the momentum of the auction, bidders have to keep up a minimum amount of activity in each round.

Small companies

There will be four to five rounds per day and the auction could last for weeks. A total reserve price of £78m has been set on the 42 licences. Regions expected to be more lucrative have a larger reserve price.

Each of the licences for London has a starting price of £4m; those in Northern Ireland are starting at £100,000. The auction could raise up to £1bn for the government.

There is renewed interest in the auction because of delays to the roll-out of high-speed ADSL connections and the time it is taking to connect customers.

Although the auction will raise far less than the sell-off of 3G licences, some fear that the price may be too high for some of the relatively small companies planning to bid.

Earlier this year, the Broadband Wireless Association wrote to the government warning that an auction may not be the best way to distribute licences and the high price could stifle the nascent market.