BT and Vodafone slug it out

The internet on the move on the phones of the future

The giants of the UK mobile phone industry are getting down to serious business in the auction for licences to operate the new generation of super-mobiles.

British Telecom and Vodafone Airtouch have emerged as the only serious bidders for the largest of the five licences available to the existing mobile phone operators in the UK.

Current top bids

Licence A: TIW: £2.87bn

Licence B: Vodafone: £3.6bn

Licence C: One2One: £2.54b

Licence D: NTL: £2.71bn

Licence E: Orange: £2.51bn

After 106 bidding rounds, and with five the 13 original bidders having pulled out, the two pushed the price for the plum licence B past £3.5bn.

That compares with the total £5bn which the auction of the five licences was expected to raise in total.

There were no signs of either side being willing to accept defeat as each trumped the other's bids during a day of tension in the marathon poker game.

Both want the licence offering the greatest capacity for handling the vast range of data and functions expected for the mobiles of the future.

Time-out called

But hopes of bidding for that licence passing £4bn were dashed as Spain's Telefonica called the first "recess day" (24 hour suspension of bidding) - ruling out further rounds until Monday.

In a fresh twist to the complex auction, each of the eight bidders still at the table can call two recess days, to ponder its next move in the fast moving auction, which has about four or five rounds per day.

The total amount being bid for the licences is now approaching £15bn, money which will go directly to the UK government.

With the prospect that more people will surf the internet via a mobile device than via a Personal Computer, the expectation is that there will be vast profits to be made in the future.

Bid stakes escalate

This next wave of mobiles (third generation, or UMTS) are expected to be able to show good quality videos and audio on handsets and allow full browsing of the internet in addition to existing phone functions.

Because of the way the auction is structured - rival bids have to be a certain percentage higher - the size of the bids is escalating at an increasingly rapid rate.

On Thursday, the bids for the sought after licence B rose by more than £600m after BT took the auction past £3bn in the first of the day's rounds.

The companies then alternated for control of the licence, with Vodafone making the highest bid of £3.63bn ($5.74 billion) in the early afternoon bidding round.

With the bidders required to raise the ante by at least 5% each round, BT will have to offer £3.81bn on Monday to topple Vodafone.

One2One and Orange

Canada's Telesystem International Wireless offered £2.87bn to outbid MCI Worldcom of the US for licence A, which is reserved for a new operator.

One2One was leading licence C with a bid of £2.54bn and cable operator NTL - in partnership with France Telecom - bid £2.7bn for licence D. One2One is owned by France Telecom's bitter rival Deutsche Telekom.

Orange clung on to licence E for a fourth round after bidding £2.59bn. Vodafone acquired Orange when it took over Germany's Mannesmann, and said it will sell the company if it wins a new license.

Eight bidders remain in the auction, which will continue until only five are left.