Analysts predict mobile auction will reach £20bn

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The Independent Online

The Government's auction of third-generation mobile phone licences, which has so far attracted bids totalling £14.3bn, resumes this morning, but with a slight modification in the rules governing how much offers must be raised in each round.

The Government's auction of third-generation mobile phone licences, which has so far attracted bids totalling £14.3bn, resumes this morning, but with a slight modification in the rules governing how much offers must be raised in each round.

The eight remaining bidders will need to raise bids by 4 per cent from one round to the next rather than the 5 per cent increment until now. But analysts expect the move to have little impact on the auction, which has attracted growing criticism for threatening to starve winning bidders of funds to develop infrastructure and services.

On Thursday, the last day of auction rounds before Telefonica requested a one-day recess, the bid for licence B, the biggest block of frequency on offer to the four existing mobile companies, jumped more than 20 per cent to £3.63bn. The rapid inflation of the bids, analysts say, is due to fierce competition between Vodafone and BT Cellnet rather than the bidding increments specified by the auction rules.

Third-generation universal mobile telecoms service (UMTS) licences are potentially valuable because their high-capacity networks will facilitate video telephony as well as internet services for e-commerce. Mobile-phone operators believe these and other applications will generate more sales revenue than the voice and messaging services offered today.

Yesterday Patricia Hewitt, the e-commerce minister, defended the Government's decision to auction the licences rather than choose winners. "These are grown-up companies," she said. "They've calculated for themselves what the value of this spectrum is."

Last week the Radiocommunications Agency, which is auctioning the licences, twice asked bidders if they wanted to lower the increments, but the offer was turned down. Analysts believe the auction is likely to end some time this week with £20bn bid in total - 10 times what the Government had expected.

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