France rejects phone auction

The licences are key to the survival of telecom players

France will award four third generation mobile phone licences in a "beauty contest" system, avoiding a costly bidding war between telecom players.

The government will allocate the licences based on merit, rather than price, but participants will also have to pay an entrance fee.

French Finance Minister Laurent Fabius said each licence would cost 32.5bn French Francs (£3.1bn), half to be paid in 2001 and 2002 and the remainder over the following 13 years, raising a treasure chest of 130bn Francs (£12.47bn) for the government.

Mr Fabius said that it was still a good deal for the French taxpayer.

"There should be no question of selling off public assets at cut-price levels," he commented.

But the two leading French telecoms companies nevertheless condemned the plan as too expensive.

"The price is very worrying compared to what we thought it would be at first," a France Telecom spokesman said.

And Vivendi said it would have to sell part of its stake in satellite broadcaster BSkyB to finance the purchase of a license.

Beauty contest

France opted for the beauty contest over the UK-style auction system, which took place earlier this year, and drove bids up to dazzling prices.

The UK Treasury eventually netted £22.47bn from the auction.

Germany is likely to do the same, and will attract bids from major telecoms players around the world.

There were fears that if France followed suit, it would marginalise some French telecommunications players who might not have enough money to pay such a high price for the licences.

There were also concerns that companies would have to pass on the costs of high-priced licences to consumers.

And one of the major French telecoms company is already owned by the government, which would in effect be bidding against itself.

Fits consumers needs

Mr Fabius said the decision to hold a beauty contest took into account the needs of consumers and the telecommunications industry.

Consumers "should be able to benefit from the new third generation technology at the best price and without discrimination, regardless of their location and resources," he said.

And telecommunications companies "should be able to develop this technology while respecting competition," he said.

France's telecommunications watchdog will publish a list of criteria for the contest by the end of June, and candidates will be invited to take part in November or December.

Licences will be granted in the first half of next year, and services launched by the beginning of 2002.

Third generation mobile phones, or UTMS, Universal Mobile Telecommunications System, offer broadband services, which allows high-speed data transmission and provides internet and video links.

Key for survival

The licences are key for the survival of telecommunications operators in what has become a highly-competitive market, dependent on continuing new technology.

France's three main telecommunication operators, France Telecom, Vivendi's Cegetel and Bouygues Telecom have all expressed an interest in taking part in the contest.

Utilities and communications group Suez Lyonnaise has said it would bid jointly with Spain's Telefonica while Deutsche Telekom has expressed its interest.