3G bids break £6bn barrier

Bidding for the UK's third-generation mobile phone licences spiralled out of control last week, as bids crashed through the £6bn barrier - more than 10 times the starting price set at the beginning of the auction.

Bids exceeding £1bn had been submitted for each of the five licences as Network News went to press. None of the 13 bidders has dropped out, despite the price hikes.

IMT-2000 Planning, the bidding vehicle for BT, Japan Telecom and Vodafone, also promised a $6.6bn investment in nine second-generation cell phone suppliers. However, analysts and industry watchers warned that some of the mobile telephony players might raise the stakes higher than they could afford.

Ovum analyst Dan Gardiner said: "It's surprising how much companies are prepared to pay." He warned of a rerun of the US Federal Communications Commission auction of US cellular licences, in which many successful bidders had to hand back their rights when they failed to build networks because of funding shortfalls.

"The US industry was very weak for a long while," said Gardiner, adding that the US experience would be repeated here if firms overstretch themselves.

This would slow development of third-generation services for customers.

"It could be a financial disaster," said Gardiner.

Prior to the auction, Gartner research director Nigel Deighton said that licences should not go to the highest bidders, but to the best telecoms operators.

"This should have been a beauty contest. Unless the bidders are extremely large, or have very deep pockets, there will not be much left to pay for innovation," he said.