Global giants line up bids for new mobile licences in UK

The Government fired the starting gun yesterday in the race to win licences to operate the next generation of mobile phone networks that are expected to come on stream in 2003.

The Government fired the starting gun yesterday in the race to win licences to operate the next generation of mobile phone networks that are expected to come on stream in 2003.

The so-called third-generation, universal mobile telephone service licences (UMTS), will vastly increase the spectrum capacity of mobile phone networks. This will permit the introduction of new services such as mobile videophones andallow for e-commerce transactions and other interactive services over mobile handsets.

The Department of Trade and Industry is to auction five licences of varying bandwidth capacity. One licence will be reserved for a new entrant in an attempt to boost competition in the mobile sector that is currently split among the four established network operators - One2One, Orange, BT Cellnet and Vodafone.

The DTI has put reserve bids on the five licences that total £500m, although Goldman Sachs expects the auction to raise three times that amount. For the four existing operators the stakes to secure a UMTS licence will be high indeed: without one a network operator will be less able to offer the interactive services that are expected eventually to provide greater revenue than voice telephony services.

The deadline for companies to register for the auction is 12 January. The bidding rounds will take place in March. Britain's UMTS auction trails that of Finland, Europe's first, but will precede Germany's auction, which is planned for May.

The fate of the UK and German auctions would seem to be closely tied now that One2One is owned by Deutsche Telekom and Orange is being acquired by Mannesmann. BT is present in Germany with a 45 per cent interest in Viag Intercom, while Vodafone has a minority interest in Mannesmann's mobile business.

"Clearly there is some merit in companies extending their footprints across Europe," said Jeremy Clayton, who heads the DTI's auction team. "But there is also interest from new entrants, including media companies and telecoms companies from around world."

Among the leading contenders for the fifth licence are WorldCom, Japan's NTT DoCoMo, and cable company NTL. Other companies that might join a consortium to bid for a licence could include Microsoft and Intel. Indeed, WorldCom, which until now has specialised in building its fibre optic network to connect business users, is understood to be planning a bid.

"They have a big team focusing on UMTS services," said an industry source familiar with WorldCom. "They're looking at all the legal and market conditions, in short, just the things you need to establish a business plan."

Industry watchers said that the four established operators should be able to bid more than newcomers, but noted that the process could throw up surprises.

"In the past we had competition from established companies and a few new, but big international players like Airtouch or Mannesmann," said Jurgen Heilbock, a telecoms industry lawyer with Jones Day. "What's new is that start-ups are backed by big investment funds that can afford to pay hundreds of millions or billions of pounds."