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Thursday, 27 April, 2000, 15:19 GMT 16:19 UK
Mobiles: Will consumers pay the price?
Wap phones from Nokia, Mitsubishi and Motorola
Telecom firms hope that Wap phones will create the customer base for third generation mobiles
The UK 3G mobile auction may be over, but what do the high prices of licences mean for the auction "winners" and for mobile phone users? The BBC's e-commerce reporter John Moylan investigates.

In May 1998 the then Telecommunications Minister Barbara Roache told Parliament that the government's decision to auction third generation mobile licences would promote and sustain competition and realise the full economic value of the spectrum to consumers, industry and the taxpayer.

Almost two years later the auction is complete - but have the government's objectives been met?

Some fear the auction process may have weakened firms by encouraging them to overbid.

All five top bidders are recognised global telecoms operators and have had months to prepare.

But from city analysts to telecoms consultants, no-one anticipated bids this size. At best the prices suggest an optimistic view of future demand.

Recovering the costs

Dr Chris Doyle, Director of Telecoms at the consultancy London Economics, advised the failed bidder One.Tel - the Australian operator backed by Rupert Murdoch.


Nokia wap phone
Third generation mobiles will make today's Wap phones look archaic
He points out that Vodafone - with its 6bn bid - now needs to generate some 600 each from a subscriber base of 10 million just to cover the auction cost.

That ignores the investment required to install, operate and market the new network.

"It is rather paradoxical that in the UK where you have a government keen to promote e-commerce and mobile commerce that we are seeing a situation where the companies would appear to be penalised in bringing these mobile services to the public."

Beauty contests

Auctions also do not always work.

In the US a similar auction in the mid 1990s left several bidders out of pocket and out of business - they had to hand their frequency spectrum back.

The UK is the first European country to auction off its "3G spectrum". Germany and the Netherlands will follow.

But the majority of EU countries plan to allocate spectrum by a "beauty contest", where a licence is given to the company best able to provide the service, not the highest bidder.


mobile phone user
UK operators have to make up to 600 profit out of each user just to recoup the licence costs
The high price that UK operators will have to pay could mean that services could suffer as a result, claims Alan Stevens, head of IT services at the Consumers' Association.

"There is a danger that some of these services will not roll out as quickly, will not be affordable and therefore we could well be left behind in the race to this third generation technology."

Ultimately the operators must recoup their costs and that could harm UK consumers.

In theory with five mobile operators competition for business should be intense.

Richard Raynor, product manager of new technology at the Carphone Warehouse, says history suggests prices will fall.

"In our experience, and that is 10 years, all we have seen is licences coming down for consumers. If you are thinking about the customer's whole bill, that may go up - but that is because they are choosing to subscribe to different types of services."

Mobile services will not launch in the UK until 2002 at the earliest.

Only then will it become clear whether the government's decision to auction the licences has landed UK consumers with some of the highest mobile charges in Europe.

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03 Apr 00 | Business
The auction: Winners and losers
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