The bidding total for the UK's five new mobile licences stands at a staggering £5bn and is still rising.

That's 10 times the initial starting price and has been achieved in a little over three weeks. None of the 13 bidders has dropped out, and there is speculation that the Department of Trade and Industry's (DTI's) Spectrum auction may eventually part the winners from a grand total of £10bn by the time it's all over.

This is the first exercise of its kind in Europe, so the eventual price is always anyone's guess. But the process is already being described as out of control, prompting fears that there will be a knock-on effect on eventual service prices. If so, it could stifle the growth of ecommerce in the UK that DTI Ecommerce Minister Patricia Hewitt hopes will be the result of early third generation mobile (3G) licensing.

On top of licence costs, recent estimates suggest that the cost of network infrastructure to deliver the new services is in the region of £3bn apiece. If the bidding continues as expected, that could put the total price tag per new operator at close to £6bn to get a 3G service up and running.

What's at stake?
The main attraction is that 3G combines the two hottest technologies of the moment, mobile communications and the internet, in a single hit. Market analyst Datamonitor predicts that some 270 million Europeans will be using mobile phones by the end of 2005, around double last year's number. And about 70 per cent of them will be data users, rather than just voice.

On top of that, 3G's extra bandwidth and functionality will add the killer application of internet access, and in particular ecommerce. BT, which is bidding for one of the smaller 3G Spectrum licences, predicts that the worldwide mobile ecommerce market will be worth $200bn (£126bn) by 2004, while its own internet revenue is growing 80 per cent every year.

Vodafone, which has already bid more than £1.3bn for one of the licences, says its expects 3G services such as videoconferencing and broadband internet access to not only halt the current decline in its average revenue per user, but boost it by up to 25 per cent by 2004. If true, it could pay for the cost of the licence in a single year.

The potential gains could be high indeed, and for existing mobile operators - BT, Vodafone, One 2 One and Orange - the cost of a failed bid could be damaging. In the game share-traders like to play, a 3G licence is a very high-value card indeed. To be left not holding could cause a run on the share price, so there's a lot to play for even in the short term.

Equally, it's a big chance for current non-players in the mobile world to get a slice of the action. Ambitious cable telco NTL, backed by France Telecom, is in there alongside a group that includes Branson's Virgin Group, EMI and even Tesco.

Australian second-tier telco One.Tel, a big bidder for one of the main licences, has said it is prepared to pay up to $3bn. The smell of big money has wafted all around the world and beyond the confines of traditional telco players.

But there's a balance to be struck. What's worrying those watching the licence bids go through the roof is that, given the pressure on fixed-wire internet access costs to fall to zero, the prospects for charging a premium to do the same thing through a mobile terminal look slim.

The danger facing mobile ecommerce
Researcher Ovum has published a report warning that mobile ecommerce runs the risk of being over-hyped, and may find the public reluctant to buy unless the services are "genuinely unique and compelling". It points out that well-tried alternative methods already exist, so anything the mobile operators offer will have to be pretty damned good.

"Business users, rather than the mass market, will be the first serious adopters, but even they won't pay a premium for existing services which are easier and cheaper to access using the phone or a PC," warns report co-author Duncan Brown.

In a nutshell, the 3G winners will need to offer big bandwidths at low cost to succeed. To win over the buying public, quality content is also a must. The inherent advantage for wireless telcos is that they could achieve these things more quickly and cheaply than fixed-wire competitors such as digital subscriber line. Speed of deployment will always be on their side. But the escalating price of the licence is eroding their cost-base advantage daily. The only sure winner is the UK government.