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Monday, 23 October, 2000, 15:23 GMT 16:23 UK
Europe's mobile phone rollercoaster
Woman speaks on a mobile phone
The high cost of German licences knocked telecoms share prices
After the early end of Italy's auction of third-generation mobile phone licences, the Italian government is left with the unwelcome prospect of pocketing far less from the sale than it had hoped.

But the story of 3G licence auctions across Europe has been one of unpredictable results and widely varying fortunes.

To that extent, the result of the Italian auction cannot be said to be unexpected.

The UK and German governments both raised billions of dollars more than they had anticipated.

But an auction in the Netherlands fell flat, generating little more than a quarter of what the government had hoped.

Five bidders for five licences

The death knell for the Italian auction was sounded when one of the participants - the British Telecom-backed Blu consortium - pulled out of bidding on Monday morning.

This left five bidders in the race for five licences.

If the bidding had started with seven participants, as had originally been intended, the Italian government might have approached its aim of raising more than 20bn euros from the licence sale.

As it was, the exit of one bidder ended the auction, with the top five bids standing at a total of just 12.16bn euros ($10.18bn).

If the licences are awarded on this basis - it is possible the Italian government might seek to have the auction annulled - it will be a major victory for the five successful bidders and a severe embarrassment to the Italian government.

The cost of acquiring Italian licences will work out at the equivalent of 211 euros per inhabitant, compared with an average of 630 euros in the UK and Germany.

The Dutch government was also embarrassed earlier this year when only six companies lined up to bid for the five licences on offer.

That auction raised only 5.9bn guilders, or $2.5bn, well below the $9bn the government was hoping to achieve.

Dramatic German results

It contrasted sharply with the UK's experience in April, when the government scooped a 22.47bn ($35.4bn) windfall - about four-and-a-half times the 5bn it had been expecting.

In that instance, fierce competition among 13 bidders had forced prices up until five companies eventually won out after 150 rounds of bidding.

Germany's licence auction, in August, produced even more dramatic results, with six successful bids totalling more than 50.5bn euros ($46.1bn).

Obtained after 173 bidding rounds, the final figure was about five times what the government had been expecting.

Stock market toll

However, while pleasing for the government, the unexpectedly high cost of the German licences took its toll on stock markets, as investors viewed the telecoms firms' mounting debts with concern and sold the stocks heavily.

On Monday, telecoms stocks came back into favour as operators appeared to have picked up Italian licences for relatively paltry sums.

But the Italian auction - Europe's last major auction of next-generation mobile phone licences - has also highlighted the risks for governments inherent in the process.

Competition can send prices skywards but its absence can leave governments rueing the day they agreed to sell such valuable assets with such unpredictable results.

The one way governments can be sure of meeting their expectations is to conduct "beauty contests" in which licences are sold for fixed fees based on the merits of bidders' technical proposals and business plans.

This was the route taken by the governments of France, Norway, Portugal and Spain among others.

Europe's next auction of third-generation mobile phone licences is due to start in Switzerland on 13 November.

Belgium is also planning a licence auction before the end of the year.


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