The UK government is reviewing its procedures for handing out broadband licences following the disastrous fixed wireless auction last month.

Just six of the 12 approved bidders bought only 16 of the 42 licences on offer and, as industry experts predicted, all were for built-up urban areas. The 10-day auction swelled the government's coffers by a mere £38m, falling far short of the £1.5bn that it expected to raise.

This means that until the government decides how to hand out the remaining licences, businesses in rural locations will not know who will provide them with 28Ghz broadband services for fast internet access or when they will be rolled out.

Before that decision is made, however, the authorities have asked for a report on what went wrong with the auction, which is expected to be published in the new year.

The poor response also casts doubt over whether future auctions for the 3.4Ghz, 10Ghz and 40Ghz bands will take place, however.

Patricia Hewitt, minister for ecommerce, put a brave face on the situation. "As a result of this auction, 60 per cent of the UK's population will have access to a new source of high-speed internet. This will provide competition to fibre, cable links, digital subscriber line services and satellite," she said.

Commercial propositions
Hewitt added that the report would help the government plan for future spectrum "allocations", and that through discussions with operators she hoped to develop a "commercial proposition in all parts of the country".

The study will likewise explore the thorny issue of awarding licences in regions where none were sold.

But the report's authors will also need to consider what legal comebacks the government might face from the six operators that have already paid for licences if it subsequently hands out the vacant ones.

The Department of Trade and Industry (DTI) is sticking rigidly to the government's line, however. When asked about the poor response to the auction, a spokesman said: "We want to find out how we can make the licences more commercial in future. We'll continue to develop broadband capabilities across the UK. We have to make sure that we can make spectrum licences commercially viable across all regions in the UK."

The auction, split the UK and Northern Ireland into 14 regions, with each being entitled to three licences. The government suffered an early blow when, having already postponed it, Orange unexpectedly pulled out, but was hit again when only four regions sold all of their entitlement.

Only London and Northern Ireland exceeded reserve prices, three regions sold some of their licences, and the rest received no bids at all. These areas included counties such as Essex, Yorkshire and Bedfordshire.

Robin Duke-Woolley, a senior consultant at Schema, had been critical of the auction process throughout, and called on the government to revise its plans. He prefers the concept of a so-called beauty contest, where companies that demonstrate their technical expertise and show they can provide the best service are offered licences, rather than those that simply stump up the most cash.

"I predicted there would be cherry picking for areas, and that most would not be picked at all. I don't think the government has done users any favours. We've got marginally more choice in competitive areas and no choice in rural areas," he said.

No new competition
But the DTI argues that beauty contests are fraught with potential problems, preventing new entrants from coming onto the market and posing the threat of legal action from unhappy losers.

"Beauty contests give spectrum to companies you think are best placed to use it. You don't get new competition in the market. Auctions are fairer and open to competition," said the DTI spokesman.

But Duke-Woolley dismissed this argument as spurious - and the broadband rollout in Ireland would appear to vindicate his claims.

"They have done the wrong thing. They could have looked at who would have provided the best service in rural areas and who could have given the most commitment. It would have been better for creating competition in the local loop," he said.

The Irish experience

Ireland has so far allocated licences in three spectrums, and is in the late stages of awarding a fourth. Although the Irish government did undergo a court case raised by one losing company, this was quickly resolved in favour of the original decision, only holding up the process by a few months.

Charlie Ardagh, director of corporate communications at Formus Broadband, which has been awarded several licences, felt that the beauty contests set in motion by the Irish government were not only the best way forward, but helped Ireland become a better place in which to conduct online business.

The UK arm of Formus also initially bid for a licence in Northern Ireland, but subsequently withdrew from the contest because it was not convinced it would provide value for money.

In the Irish auction, companies had to prove to the regulator and an independent consultant that they had both the financial expertise to manage the licences and were able to provide innovative, competitively priced services for customers.

They also had to prove that they were committed to providing coverage in rural areas to stop the cherry picking that occurred in the UK.

"It would be a good route for the UK to follow," said Ardagh. "Ireland is a lot better off and will benefit as a country. The Irish government has a good attitude, and it genuinely wants Ireland to be a European hub for ecommerce."