Recriminations fly as Italian mobile auction ends in chaos

Italy's third-generation mobile phone auction descended into chaos yesterday after the Blu consortium, in which British Telecom is a 20 per cent shareholder, dramatically fell apart.

Italy's third-generation mobile phone auction descended into chaos yesterday after the Blu consortium, in which British Telecom is a 20 per cent shareholder, dramatically fell apart.

Blu exited the auction after BT refused to increase its stake. Several of the Italian mobile consortium's other shareholders, led by Autostrada, the motorway firm controlled by the Benetton textile family, had wanted BT to bear more of the cost of a third generation licence and the related network build-out.

Pat Gallagher, BT's group director, strategy and development, said: "We could have bought out the partners for a huge price, but we had to draw a line in the sand somewhere." He declined to specify what consideration BT's Italian partners had sought.

Earlier yesterday, BT offered to fund Blu with 500bn lira (£149m) in cash to keep the consortium in the auction. That offer, however, was turned down by Autostrada, which, as the largest shareholder in Blu with a 32 per cent stake, was able to veto the proposal.

Mr Gallagher said Blu shareholders had made a number of proposals under which BT would raise its stake. BT, he said, wanted to finish the auction process before restructuring Blu's ownership.

BT's position was backed by Banco Nazionale del Lavoro (BNL) and Mediaset, the media group controlled by former Italian Prime Minister Silvio Berlusconi, which together hold a 16 per cent interest in Blu. Other minority shareholders gave the BT proposal a 52 per cent majority of the vote, but that failed to secure the 80 per cent approval required to push through a change in the company's structure.

In a statement, the UK telecoms giant said: "BT was prepared to support Blu bidding to a higher figure than the level at which the company withdrew. Regrettably, a meeting of the Blu shareholders has decided that the company should not continue in the auction process for a universal mobile telecoms service licence (UMTS)."

It remained unclear last night whether the Italian government would try to restart the auction. Sources in Rome said the bidding process had been "suspended, but not cancelled."

With Blu's departure on the third day of the auction, the five licences on offer were matched with five bids totalling 12.2bn euros (£7bn), or about half what analysts had expected. IBritain's UMTS licence auction last spring raised £22.5bn.

The early end to the auction boosted the shares of winning bidders with Vodafone, which owns Omnitel Pronto, Italy's second biggest operator, adding 5p to 281p. Telecom Italia Mobile, Wind, Andala and Ipse won the other four licences. BT stock closed down 8p at 707p after an early rally to 739p as investors initially breathed a sigh of relief that the company's £30bn debt mountain would not be rising.

Mr Gallagher said BT's European strategy wouldn't be affected by the failure to gain an Italian UMTS licence. He added: "I think it's too early to say what were going to do as partners in Blu. There are commitments and lock-ins in the joint venture which commit everybody to the development of Blu."

To date BT has invested £100m in Blue, which began operating in May and has about 500,000 subscribers. BT expects to invest about another £250m in the company over the next three years.

John Tysoe, analyst with West LB Panmure, considering BT's European plans, said: "It's not a pan-European strategy any more. It's not got a pan-European footprint."