Mobile auction bids top £16bn as worries grow over burden to be faced by winners

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The Independent Online

The Government auction of next-generation mobile phone licences roared back to life yesterday with bids topping £16bn, including an unprecedented £4.25bn bid from Vodafone AirTouch as it and British Telecom continued to up the ante.

The bidding recess on Friday requested by Telefonica, ostensibly designed to temper bidding enthusiasm, seemingly had the exact opposite effect as the total amount on offer rose by over £1.7bn during yesterday's four auction rounds.

British Telecom and Vodafone traded ever more costly blows over licence B, the biggest block of frequency on offer to the four existing mobile companies, with Vodafone prevailing in yesterday's final round. That saw the value of licence B soar by over £600m, heightening the view among analysts that fierce competition between the rival telecoms giants was a bigger factor in the rapidly inflating bids than the bidding increments specified by auction rules.

The rises came despite a rule change, which came into effect yesterday, allowing the eight remaining bidders to raise their offers by a minimum of 4 per cent from one round to the next rather than the 5 per cent increment used until now.

An executive with a consortium that has withdrawn from the auction said: "Vodafone and Cellnet need the extra spectrum capacity of licence B more than One2One or Orange because, under their current licences, they are restricted to the 900 megahertz frequency." The two smaller UK operators, with 1,800 megahertz networks, have a less acute shortage of bandwidth capacity than their larger rivals.

During the day BT and Vodafone swapped pole position for licence B. In round 109, yesterday's second-to-last auction session, BT pipped Vodafone with an offer of £4.08bn, taking the price of a licence above the £4bn mark for the first time.

It is unlikely, however, to be the last licence to reach that lofty level. Telecoms industry experts believe that each of the other four licences up for grabs could eventually attract similar bids.

But some investors are beginning to worry about the prices the remaining companies are prepared to pay. Vodafone shares yesterday fell by 4.9 per cent to 338.25p, although market watchers blamed part of the fall on uncertainty about what conditions the European Commission may impose tomorrowwhen it rules on the company's takeover of Mannesmann of Germany.

In the bidding for the other frequency blocks, NTL Mobile led the way for licence A with an offer of £3.25bn, while Telefonica was in the lead for licence B, offering £2.84bn. One2One held pole position for licence C, bidding £2.85bn, and Orange prevailed for licence E with an offer of £2.86bn.