This week's UK wireless internet licence auction fiasco must be right up there with the Millennium Dome, the wobbly Millennium Bridge and London's cancelled new year's eve fireworks display as this year's grade A political embarrassment.

But in monetary terms at least, it outweighs all the others put together.

Following a lengthy auction process, the complexity of which would impress even the most bureaucratic of US electoral officials, only 16 of the 42 available fixed radio spectrum licences in the 28Ghz band were sold, raising a paltry £38.16m compared with the anticipated £1bn.

The UK government was, no doubt, hoping to add to the whopping £22.5bn it raked in from the auction of third generation (3G) mobile phone licences earlier this year. Instead, it has egg on its face, and the prospect of further difficulty when it comes to finding buyers for the 3.4Ghz, 10Ghz and 40Ghz frequencies that are scheduled to come up for sale next year.

The technology in question enables radio waves to transmit data at 35 times the speed of existing dial-up internet services, and is intended to provide competition to fibre, cable, DSL phone line and satellite operators, which also provide users with access to broadband services.

The broadband divide
The government's hope was that broadband fixed wireless access technology would accelerate the spread of broadband internet connections in the UK. Instead, a clear two-speed track has emerged, separating the broadband haves from the broadband have nots.

The auction has resulted in licences being purchased for densely populated regions such as the south east, midlands and north west, while more rural areas such as Wales and the south west have failed to attract a single bid. The winning operators include Energis, Faultbasic, Chorus Communication and Eircom.

The auction's failure means that about half of the UK's population is left with no choice other than to use traditional copper-based telephone lines to access broadband internet services. This is a particular disappointment for a government that likes to try and pitch the UK as Europe's internet pace-setter.

And early indications are that Department of Trade and Industry (DTI) minister Patricia Hewitt, who has launched an investigation into the sell-off, is considering throwing out plans for further auctions.

Sources close to the Radio Communications Agency, a body that regulates the use of the airwaves, suggest that various members of the government have serious doubts about whether auctions are the best sales medium for licences.

The DTI has issued a statement distancing itself from the cock-up. "We have never said that the sell-offs had to be conducted one particular way. There are a number of different methods of selling licences, including auctions and beauty contests, and they will all be discussed," it said.

Early delays
But the auction had been dogged by controversy from the start. It was initially delayed by a month to give the government time to scrutinise bidders in more detail, but it was at this stage that they started pulling out - a scenario that also included a last minute withdrawal from Orange.

The telco, which is due to float on the stock market at the beginning of next year, refused to explain the rationale behind its decision, however.

But the story is quite different in the US. Top carriers such as AT&T, Sprint and Nextel are being held back from bidding for precious air space by the Federal Communications Commission until they file more paperwork justifying their rampant interest.

The heat generated by the US auction, which is scheduled to take place on 12 December, is intense, with carriers facing an airwaves shortage as increasing numbers of new customers come on board and existing customers use wireless technology more and more.

The licences for bands being auctioned next month, which include ones covering the whole country, are considered top rate - the bands are totally unused and can easily be paired with carriers' existing offerings.

So what's gone wrong on this side of the pond, and how can it be put right? Or has the European airwave auction gravy train simply hit the buffers once and for all?

Reasons for the failure are not actually all that hard to find. For starters there's the problem of growing debt in the whole telecoms industry, thanks in no small part to the high cost of providing 3G mobile services.

Just consider what's happened to BT. Its debt currently stands at about £18.7bn and is likely to mushroom to £30bn or even £35bn by next March as a result of acquisitions and the cost of taking a stake in the 3G mobile market. Moving into 3G has cost other European telcos dear as well, causing a round of belt tightening and more than a spot of redundancy.

And estimates as to how much licences would cost in the run up to this week's auction are likely to have scared off many bidders. Those that took part evidently decided to hedge their bets and concentrate on major conurbations, where there's plenty of business activity and they can sign up subscribers quickly.

Top-level responsibility
But perhaps the biggest reason for the disaster lies squarely at the feet of the government. Clive Longbottom, an analyst with research consultancy Quocirca, feels the affair has been handled badly at the highest level.

"It's been a case of pure greed on the government's part. It did so well out of the 3G auction that it thought it could do the same again, but with an auction of lesser importance. In the end, there were about as many bidders as licences, which, of course, isn't how an auction is supposed to work," he explained.

He added that the authorities also failed to learn from similar problems in Italy and Austria. Because they put money first and thought too provincially, the broadband wireless market has been scuppered for the time being.

"The need to develop a global infrastructure has conflicted with the regional view of politicians. In future, the government needs to think less about money and more about helping to develop a young market," said Longbottom.

"It needs to engender competition, and work with the industry rather than just selling to it. It needs to ask questions about where the market will be in three years' time rather than look for short-term gain. And it needs to take BT outside and shoot it to ensure that proper competition actually happens," he added.