BT's European mobile ambitions in disarray as Blu consortium collapses

British Telecom'S plans to develop a broad-based European mobile business were in disarray last night after Blu, the consortium bidding for Italian next-generation mobile licences, collapsed.

British Telecom'S plans to develop a broad-based European mobile business were in disarray last night after Blu, the consortium bidding for Italian next-generation mobile licences, collapsed.

Industry observers said it now looked highly unlikely that Blu would turn up for the next round of bidding this morning at 7.30.

Blu's likely departure is a serious blow to the Italian government. It brings the auction to a close after just 10 rounds of bidding.

There will henceforth be only five bidders competing for the five licences on offer.

BT was locked in talks all weekend with its partners about raising its stake in the bidding consortium, a move which would see it bear more of the costs of developing Italy's third-generation mobile network.

It is thought that the Benetton family, which leads the consortium, and Autostrade, the Italian motorway group that owns 32 per cent of Blu, believe BT's status as a telecoms company mean it should own at least 50 per cent of the consortium. BT presently owns 21 per cent.

While it is thought that BT agreed with the principle of raising its stake, it apparently was unable to agree the terms whereby that would be achieved. BT's progress in resolving the dispute has been hampered by concerns that it might overpay in raising its stake and put yet greater pressure on its stretched balance sheet. The group already has £30bn in debt.

Earlier yesterday, BT had been confident that it would be rejoining the bidding this morning.

"We are expecting to return to the auction on Monday," a spokesman had said. But after an evening meeting with its consortium partners yesterday, BT said it had no comment to make on the situation.

On Friday, just one day after the auction began, Blu exercised its right to request a single recess in the proceedings. The request was widely interpreted as a sign that Blu was preparing to withdraw.

The five parties left bidding for the Universal Mobile Telecommunications System (UMTS) licences have submitted bids totalling just 12.2bn euros (£7.1bn).

Italy had initially hoped to raise at least 21bn euros from the auction. Britain's mobile auction raised some £22bn.

"I'm watching the auction with a great deal of interest, but any comment from me now would be a mistake," Reuters reported Giuliano Amato, the Italian Prime Minister saying yesterday. The Italian government dismissed suggestions it would need to revise its budget should the auction collapse, saying its minimum predictions had been surpassed by 10 per cent.

While BT raised its stake in bidding consortium Viag Interkom ahead of the auction for Germany's next-generation mobile licences, it would be harder to do so with Blu as BT's balance sheet has become further stretched since then.

Weekend reports in the Italian media suggested that Blu might continue to bid on Monday morning, but withdraw quickly afterwards. There was also speculation the consortium may regroup with different partners involved.

One report said some partners wanted to rearrange the consortium on completion of the auction, while others said that Autostrade and Edizione Holding, which are controlled by the Benettons, and Caltagirone, the construction group that owns 7 per cent of Blu, were in a hurry to settle the matter.