Mobile auction madness delays second sale

Extravagant bids in the UK's next-generation mobile phone licence auction could delay the sale of fixed broadband wireless licences.

Bids for the third generation (3G) licences, which passed £17.5bn today, will make a huge windfall for the UK government. But there are concerns that the auction has pushed prices way beyond their real value.

With licences for fixed broadband wireless spectrum due to start this spring, analysts say the government may be getting cold feet over whether to use the auction process again.

Tim Sheedy, a telecoms analyst at researcher IDC said: "The prices of licences have got so high in the auction, I think it would have to play in [the government's] thoughts."

"I reckon that there will be a backlash to the auction process right across Europe after this, particularly if one of the big players, like Orange, does not get a licence."

A senior official at the Department of Trade and Industry (DTI) said he had recommended waiting until the 3G auction is over before proceeding with the next licence sell off. "Otherwise people will get confused," he said.

He said it would be better to wait for another two or three weeks because he can see the current auction process "dragging on for that long".

E-minister Patricia Hewitt will decide whether to sell the fixed wireless licences by auction or at a fixed price based on a company's merit. Some experts favour the merit option, believing it would leave more money for building infrastructure and offering affordable services.

However, Dirk Bout, an analyst at researcher Dataquest said there are also drawbacks to not using an auction. "This method obligates people trying to win the spectrum to say exactly what they are going to do with it. Can you obligate them to follow certain pricing structures?"

The recommendations of a consultative committee on whether the next auction should be a beauty contest or an auction have not been released, but the DTI spokesman said the current auction would not have an impact.

"Ministers were keen to squeeze the most out of the spectrum auction for 3GL, and keep a licence free for a new entrant to encourage competition," he said. "The licences for broadband will be regionally based and it is a different setup with more companies bidding, not just big multinationals."

The 3G auction has so far raised more than five times the total the government was expecting to raise in the auction process. Dataquest's Bout said the bids are "over the top".