Italian phone firm faces damages claim

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The Italian government said today it will seek damages from a firm whose withdrawal from an auction for third-generation mobile phone licenses cost the government billions of dollars.

The Italian government said today it will seek damages from a firm whose withdrawal from an auction for third-generation mobile phone licenses cost the government billions of dollars.

The withdrawal put a premature end to the auction after two days of bidding. The licenses went for less than half of what analysts and the government had predicted.

The withdrawal by Blu, a mobile phone operator whose main shareholders are Benetton's Autostrade and British Telecommunications, left five contenders for as many licenses.

The government said it hoped to keep the 4 trillion lire (about £1.2bn) that Blu had offered as a guarantee. It also said it might seek further damages.

The government alleged Blu violated auction procedures in the way it dropped out and also violated confidentiality rules, making it clear to other bidders that it would pull out of the contest.

Blu issued a statement saying it would take steps to defend its image and assets.

The government came under criticism for the way it handled the auction, widely considered a failure. Some analysts said allowing only six bidders with five licenses was too much of a risk. An upstart consortium's application was rejected before the contest.

Others, however, indicated that selling the licenses for a relatively low price will benefit consumers in the long run.

Italy reaped a disappointing 26.7 trillion lire (about £9bn), way lower than the approximate £26bn made by Britain for five licenses.

The government had announced it would use the revenues to pay off some of the country's national debt.

Telecommunications Minister Salvatore Cardinale said the 2001 budget targets were calculated on the basis of the minimum UMTS revenue of 20 trillion lire (about £6bn) and that they won't be affected.

He also ruled out the possibility that Blu or its shareholders would be allowed to form an alliance with the license winners.

"I can guarantee that there will be a more than adequate surveillance in this area," the minister said, speaking during a Senate hearing on the auction.

The winners of the licenses are the country's other mobile phone companies - Telecom Italia, Omnitel, and Wind - along with the IPSE 2000 and Andala consortiums.

The third-generation, or 3G, licenses will enable a wireless company to send far more information to a cell phone, transforming it into a mobile personal computer that can roam the Internet, display video and provide constant e-mail access.

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