Bidding frenzy puts mobile licence auction on track to raise over £6bn

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The Independent Online

The Government's auction of third-generation mobile phone licences looks set to raise in excess of £6bn - more than twice the original estimate - following a frenzy of bidding yesterday.

The Government's auction of third-generation mobile phone licences looks set to raise in excess of £6bn - more than twice the original estimate - following a frenzy of bidding yesterday.

After the latest round of bids closed last night, the total offer for the five licences available stood at £3.84bn - up by more than £400m on the day.

Such is the demand for the universal mobile telecommunications service (UMTS) licences that analysts and bid participants now believe the auction will produce a huge financial windfall for the Chancellor, Gordon Brown, in the 2000/1 fiscal year. Receipts of £6bn would be equivalent to putting 3p on the basic rate of tax.

"I think the bidding is certainly hotting up," said Alexander Guntz, mobile analyst with city firm ABM Amro. "The end game is coming into sight."

The auction began three weeks ago and has no set time limit. Licences will be awarded once eight of the 13 companies in the auction withdraw from the bidding, leaving five winners.

For each of them, the prize is a 20-year licence to provide third-generation mobile service. Unlike the current service, second-generation digital mobile or GSM, the next generation networks will have far greater capacity to transmit data.

This will allow operators to offer video phone services and constant Web access. These and other innovations are expected eventually to bring in more revenue from customers than traditional voice services.

The auction, being conducted by the Radio Communications Authority, passed its 61st round yesterday. Licence A, which offers the most spectrum and is reserved for a new entrant, commanded the highest bid with NTL Mobile, a subsidiary of the cable group, offering £965.5m.

Earlier in the day, Spectrumco, a consortium linking Richard Branson's Virgin Group and Tesco, bid the most for Licence A with an offer of £919.4m. Under the rules of the auction, the winner of one round is ineligible to bid in the following round.

Any bidder joining a round must raise their offer by a minimum of 5 per cent from the previous round's highest bid. In the auction's early sessions, this saw lead bids rise by only £5m to £10m a round, while in recent rounds increases have surpassed £40m.

Of the four other licences, all of which are open to the incumbent operators - BT Cellnet, Orange, Vodafone and One2One - and new companies, Licence B is deemed the most valuable. It has more spectrum capacity that Licences C, D and E, although less than Licence A.

Yesterday Vodafone led the bidding for Licence B with an offer of £932.6m. Holding the lead it secured during the first morning round, required Vodafone to up its offer over the day by £86.8m.

The Spanish telecom giant Telefonica began and ended the day in the pole position for Licence C with a bid of £637.3m, up £73.9m over yesterday's five auction rounds. Bidding for Licence D saw 3GUK offer £665m, supplanting WorldCom's opening round leading bid of £553.7m. That saw the leading US internet data carrier shift its attention to Licence E where it prevailed with a bid of £652.4m.

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