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The BBC's Rory Cellan-Jones
"One of the most extraordinary auctions ever seen"
 real 28k

James Ross, ABN Amro
"Worth between 3 and 5 billion"
 real 28k

Friday, 31 March, 2000, 17:12 GMT 18:12 UK
Mobile phone cash bonanza

Critics say mobile phone users will be taxed
The bidding war for five licences to run next generation mobile phone networks is generating a huge cash windfall for the UK government.

The so-called "third generation" of mobile phones will offer consumers broadband internet access on the go.

On Friday, the total value of bids passed the 10bn mark, far higher than the 5bn originally expected and the 500m minimum bid.

As yet, none of the 13 bidders has dropped out of the contest for the licences.

With two weeks still to go, speculation is now that licences could fetch 5bn each, or up to 25bn in total.

Wireless internet

The next generation of mobile phones will make the wireless internet a reality for the UK.

Phones, watches and other handheld devices will be powerful enough to show video on demand.

The government is auctioning five licences to create the networks and operate the mobile services.

Worth the money?

But as the bids escalate, analysts question how much the licences are really worth and whether the bidders can afford to pay that much.

"These licences are worth something like what is being bid right now or maybe a premium of 20% or 30% above that," James Ross, telecoms analyst at ABN Amro said on the BBC's Today programme.

At this stage, it is in all the bidders' interests to keep bidding.

Those that do not win the licence have landed their competitors with a hefty bill for the licence.

The consortia that do win the licences can dominate the provision of the new technology in the UK.

They could also pass some of the cost on to the consumer, prompting criticism that the auction system is ultimately a tax on mobile phone usage.

The cost to the companies

If the bids get much higher, then investors in the bidding companies may start to show concern.

"As we get above this level, you may well see share prices beginning to react to the bids negatively. Once that happens, then management will be under pressure", Mr Ross said.

A similar auction in the US had to be re-run last year when the winning companies could not afford the amounts they had bid.

This is unlikely to happen in the UK, where all the bidding consortia are established companies with money to spend. In the US the licence winners were new entrants to the market.

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See also:

28 Mar 00 | Business
Mobile auction: Latest News
12 Jan 00 | Business
Bidders line up in mobiles auction
08 Dec 99 | Sci/Tech
Wap - wireless window on the world
09 Dec 99 | Business
The mobile internet race
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