Welcome to the new Independent website. We hope you enjoy it and we value your feedback. Please contact us here.

Business Comment

James Moore: Chancellor won’t get hammered in auction


It's a risky thing to set a target price for an auction as the Government has done with the sale of bandwidth for 4G mobile phone broadband services.

Auctions are unpredictable things, and you have no idea how the bidders will behave once they get started. That's why the best bet is to stick with the reserve (it's £1.3bn in this case) because it allows you to claim anything above it as a success.

Announcing you're counting on getting more than twice that, and spending the money before it's in, and you run a very real risk of getting horribly embarrassed.

Luckily for the Chancellor, there are a couple of things working in his favour. The first is that there are more bidders than just the existing mobile companies.

Everything Everywhere (the silly name for the owner of Orange and T-Mobile), Vodafone, O2 and Three are all in there, as is BT. But there is also the Hong Kong conglomerate PCCW and UK network supplier MLL Telecom.

The bigger the field, the better the outcome. European auctions have also provided a better- than-expected return for chancelleries that need the money even more than we do, another encouraging sign.

It's true that the madness of the 3G auction that provided £22bn for Gordon Brown to waste won't be repeated. But the bidders know that the risk of overpaying isn't quite what it seems. Take Vodafone, which spent £6bn in the UK 3G auction. It funded its bid by borrowing. That bid, and the interest on the borrowing, have contributed to a lower-than-expected corporation tax bill, which has created a certain amount of comment recently.