Stakes rise in German auction

Bidders for Germany's third generation mobile phone licences have begun to raise the stakes as speculation grows that some bidders may drop out this week.

At the end of Monday, bids totalled over 9 billion euros ($8.5bn), still far short of analysts' original expectations.

The France Telecom-backed Mobilcom bid was in pole position at the end of Monday.

Analysts now say that the less well-financed bidders may be running out of money.

"I feel that one could drop out at the middle or end of this week," WestLB Panmure telecoms analyst Holger Grawe said.

Action in the auction began to heat up on Thursday and Friday after the first three days were notable mainly for the cautious bidding by the seven candidates.

(It has) met perfectly with our expectations

German regulator on the progress of the bidding

Germany's Telecom Regulation Authority said it was "very satisfied" with the progress of the bidding which it said met "perfectly with our expectations".

The German auction is structured so that each round lasts 40 minutes, with the first taking place at 0800 local time and ending at 1800.

The bidders

Deutsche Telekom

Mobilfunk (Vodafone-Mannesmann)

E-Plus (Hutchinson Whampoa, KPN)

Viag Interkom (BT, E.On, Telenor)

MobilCom (with France Telecom)

Debitel (SwissCom)

Group 3G (Sonera, Telefonica etc)

It is a modified version of the system used by the UK government to auction off its own licences.

Third-generation mobile phones will allow customers to access the internet on the move or watch near TV quality video.

In the UK a much higher than expected total of £22.5bn ($34.5bn) was raised.

The German licences are theoretically more valuable, although there have been signs that telecoms firms are finding ways to minimise the licence costs.

Forecasts halved

Mainly this has been achieved by a series of alliances. Forecasts for Germany's auction were halved after the licences covering the Netherlands raised $2.4bn, a third the amount expected.

That uncertainty has led to analysts predicting that the total raised by the licences could end up anywhere between 25 and 61 billion euros.

A UMTS licence is more valuable to an incumbent operator than to a new entrant because incumbents have to protect the business they have

Telecoms analyst

There are between four and six Universal Mobile Telecommunications System (UMTS) licences are up for auction.

Companies do not bid for the licence itself, but for 12 different frequency blocks.

For a single licence, at least two frequency blocks are required. But three are needed if the company aims to have a network which covers the whole of Germany.

This means that there could be just four licences on offer for firms which want to cover the entire German market.

MobilCom's top offer so far is of 4.791 billion marks for three blocks.

More to come

Analysts expect Deutsche Telekom's T-Mobil, Mannesmann Mobilfunk, E-Plus-Hutchison, BT-backed Viag Interkom and France Telecom-backed reseller MobilCom to win licences.

The two outsiders are seen to be Swisscom-backed debitel and Group 3G, a consortium of Finland's Sonera and Spain's Telefonica.

"A UMTS licence is more valuable to an incumbent operator than to a new entrant because incumbents have to protect the business they have," noted one analyst.

Italy's third generation licence is due to start at the end of the month, with Belgium and Switzerland planning UMTS tenders in September and November.