German auction nears climax

Germany's auction of third generation mobile phone licences is approaching a climax with the organiser predicting a "long and exciting" day on Wednesday.

The combined value of the bids reached 43.79bn euros ($39.9bn) by the close of action on Tuesday.

Auction organiser, Klaus-Dieter Scheurle, said: "We are approaching the pain barrier in the level of bids and we should be prepared for a long and exciting day tomorrow."

The auction has been running for 12 days, with 150 bidding rounds.

Despite the escalating cost none of the bidders pulled out on Tuesday.

However E-Plus, which is bidding jointly with Hong Kong-based Hutchison Whampoa and Dutch KPN, said it was lowering its sights to focus on securing just two instead of three frequency blocks.

The bidding for German licences is now well above the £22.5bn ($35.4bn) record reached in the UK's auction of similar licences.

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)

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

The amount raised in the UK auction was much higher than expected.

Third-generation mobile phones allow customers to access the internet on the move or watch near-TV quality video.

Drop outs

The high German bids come despite the withdrawal of Debitel, which was backed by Swisscom, the first company to leave the auction held by the German telecoms ministry.

And on Monday, BT-backed Viag Interkom said it would only bid for the two minimum frequency licences because of the high costs involved.

Amid the intensifying bids, speculation grew that 3G group, backed by Telefonica and Sonera, would be the next to drop out because of the costs.

The question is "when 3G will leave and how the remaining bidders will behave afterwards," said Bankgesellschalf Berlin analyst Ralf Hallmann. "So no clear bidding strategy is visible."

Analysts expect Deutsche Telekom's T-Mobil, Mannesmann Mobilfunk, E-Plus-Hutchison and France Telecom-backed reseller MobilCom to win licences.

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.

Close to UK system

It is a modified version of the system used by the UK government to auction off its own licences.

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.

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.

France opted for a "beauty contest" rather than an auction, looking at the merits of each candidate rather than the amount of money they are prepared to pay.