Ministers hope to make at least £1bn in auction of radio licences

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The Independent Online

The Government is hoping to repeat the success of its auction of mobile phone licence by staging a similar sell-off for the radio spectrum.

The Department of Trade and Industry hopes to raise at least £1bn with the sell-off of licences for "fixed wireless" phone operators.

The new microwave technology will provide high-speed internet access and two-way video links for small offices and homes, without the need for expensive underground cables.

Analysts expect at least £1 bn to be raised for the Treasury, although the figure could be even higher.

Although the amount is small in comparison with the £22.5bn raised for third-generation mobile phone licences, ministers believe it would still represent to excellent value for money for the taxpayer.

DTI sources confirmed yesterday that regional auctions for three fixed licences at 28 gigahertz will be held in September, with further details of the 40GHz range due in the summer.

The Government has already announced plans to issue lower-capacity licences at 3.5GHz by the end of the year, probably by picking suitable applicants rather than holding a competitive auction.

The decision to revert to an auction for the remainder of the so-called "wireless local loop" spectrum comes amid criticism within the industry about the vast sums raised at such auctions.

Some analysts claim that the potential licence bidders are likely to be small companies or start-ups who are worried about the affordability of the auction process.

However, ministers defend the practice as the best market-led means of awarding what are likely to be lucrative licences in the long term.

Patricia Hewitt, the e-commerce minister who oversaw the huge mobile phone competition, insisted that the radio spectrum auction was in the best interests of both the industry and the taxpayer. "Awarding licences by auction will ensure that they are taken up by those operators best placed to develop services most efficiently," she said.

"The licence package is designed to encourage new entrants and the development of a competitive market."

The auction idea, which was devised by an academic on the basis of economic game theory, has been more successful than any ministers dared hope.

The £22.48bn raised by the mobile licences is worth more than the coal and rail privatisations put together. New Labour is especially pleased that it has devised a means of using the market more efficiently than did the last Conservative government.