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Sunday, 13 August, 2000, 13:21 GMT 14:21 UK
German mobile bidding intensifies
German third-generation mobile phone licence auction
Spanish telecom operator Telefonica has stressed its determination to win a new generation mobile phone licence in Germany's auction.

Six companies are now competing for what are expected to be five licenses in Europe's biggest mobile phone market.

Debitel, which was backed by Swisscom, was the first company to leave the auction held by the German telecoms ministry.

Speculation had existed that 3G group, backed by Telefonica and Sonera, would be the next to drop out.

After two weeks, bids totalling 63bn Deutschmarks ($29.29bn) have been received.

"In Germany, we are very serious and have more steam and financial means than others," a Telefonica Moviles spokesman said.

Last week, Telefonica announced its plan to launch a $5bn bond.

"Telefonica is ready to use the upcoming bond, and the money saved by pulling out of the British auction earlier this year can also be used to win in Germany," the spokeman added.

3G was the top bidder on Friday, offering a total of 15.82bn DM for three auction blocks.

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

"Next week we will enter the hot phase of the auction and the winners will slowly emerge," telecoms regulator Klaus-Dieter Scheurle said.

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 German government plans to use the money to reduce its budget deficit.

The bidders
Deutsche Telekom
Mobilfunk (Vodafone-Mannesmann)
E-Plus (Hutchinson Whampoa, KPN)
Viag Interkom (BT, E.On, Telenor)
MobilCom (with France Telecom)
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.

But it is now clear that the total will be greater than expected - with the surplus going to help reduce the budget deficit of the German government.

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.

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.

Group 3G, a consortium of Finland's Sonera and Spain's Telefonica, is thought to be an outsider.

"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.

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See also:

27 Apr 00 | Business
The auction: Winners and losers
03 Jul 00 | Business
Phone auctions left on hold
24 Jul 00 | Business
Dutch licences 'go cheap'
29 Jun 00 | Business
Warning hits telecoms shares
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