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Thursday, 17 August, 2000, 19:42 GMT 20:42 UK
German phone auction bonanza
Klaus-Dieter Scheurle, in charge of the German 3G phone licence auction
The amount bid has topped organisers' expectations
The auction of third generation mobile phone licences for Germany has ended with record takings for the government.

The six remaining bidders agreed on Thursday afternoon to each settle for two of the 12 frequency blocks on offer.

The surprising outcome meant that none of them had to drop out.

For the past two days they had been offering more and more money as each sought to get the three frequency blocks which would have provided a powerful nationwide network.

At the close of the auction the combined value of the bids was more than 50.5bn euros ($46.1bn, 30.4bn).

Deutsche Telekom's T-Mobil paid the most, bidding 16.6bn DM ($7.8bn) for its two licenses.

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

Government windfall

The total was higher than most analysts' pre-auction predictions and earlier led to a sharp fall in many European telecom stocks.

On Thursday billions was wiped off the share value of companies like British Telecom and Vodafone, and Telefonica as investors feared they had over-paid for the licenses. But Deutsche Telekom bucked the trend, with its shares rising on relief that it was only paying for two, rather than the expected three, blocks.

The winners
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 amount raised is about 30% higher than that raised in the record breaking UK auction of third generation licences, and five times the amount the German government originally estimated it would receive.

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

A spokesman for the finance ministry in Berlin, Joerg Mueller, said that the funds raised represented "an important step forward in getting state finances into shape."

He added that the windfall would help provide hundreds of thousands of jobs, and further boost government finances by reducing the size of government interest payments on its debt.

Fewer drop outs

The high bids came after the withdrawal last Friday of Debitel, which was backed by Swisscom, the only company to leave the auction held by the German telecoms ministry.

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

If the others had agreed at that stage they could have saved themselves billions of euros. The final bids were more than 40bn Deutschmarks ($18.7bn) higher than the total at that stage.

Analysts had expected the four existing mobile phone operators Deutsche Telekom's T-Mobil, Mannesmann Mobilfunk, E-Plus-Hutchison and France Telecom-backed reseller MobilCom to win licences.

The German auction had been running for two weeks, with 173 bidding rounds.

The auction was structured so that each round lasted 40 minutes, with the first taking place at 0800 local time and ending at 1800.

Close to UK system

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

Companies did not bid for the licence itself, but for 12 different frequency blocks.

For a single licence, at least two frequency blocks were required. But three were needed if the company aimed to have a network which covered the whole of Germany.

This means that there would have been just four licences on offer for firms which wanted to cover the entire German market.

Sweden is the next country which will auction its mobile phone spectrum, with an application deadline of 1 September.

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.

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The BBC's Patrick Bartlett
"Europe's biggest telecoms market"

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