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U.K. cell auction nets $35B
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April 27, 2000: 6:41 a.m. ET
NTL gives up, leaving five winners with next-generation cellular licenses
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LONDON (CNNfn) - The six-week battle to secure Britain's coveted new-generation mobile-phone operating licenses ended Thursday after cable company NTL dropped out of the race.
The auction raised a total of £22.5 billion ($35.5 billion) for the U.K. government, dwarfing initial estimates of £3 billion. The figure equates to around $600 for every man, woman and child in Britain. Gordon Brown, Chancellor of the Exchequer, has pledged to use the extra cash to reduce government borrowings.
"The prices being paid are undoubtedly much higher than the companies expected, than we as analysts expected, and I think the government expected," said analyst Mandeep Singh at ABN Amro. 
The licenses to run third-generation universal mobile telecommunications system (UMTS) services will allow operators to offer consumers fast access to the Internet from mobile phones and the ability to download data and moving video images.
From an initial field of 13 companies, Nasdaq-listed NTL (NTLI: Research, Estimates), Britain's largest cable company, was the last to drop out after 150 rounds of bidding, leaving five companies to scoop up the licenses on offer. Participants employed a variety of technologies and experts, including game theorists, to try to get an edge on rival bidders.
Vodafone AirTouch (VOD) won the sought-after B license, which offers the largest spectrum width available to an incumbent operator, with a bid of almost £6 billion. The world's largest cellular firm prevailed in a fierce battle with British Telecommunications (BT-A) that forced the price of the license up sharply as the auction entered its final weeks.
BT secured the less powerful C license, and the other two incumbent U.K. mobile operators, One2One and Orange, also secured licenses. A consortium headed by Canada's TIW (TIW: Research, Estimates) won the only license reserved for a new market entrant.
"It was absolutely essential for an existing operator who had a captive customer base with market values in hundreds of billions of dollars to capture these licenses to secure their future," Singh added.
New-generation services have already proved popular in other parts of the world. Japan's NTT DoCoMo has been running its i-mode service - a more limited operation than the UMTS licenses will allow - since March 1999, and has already signed up 5 million subscribers, an eighth of its total customer base.
The soaring prices paid for U.K. licenses have alerted analysts to the potential of comparable auctions that lie ahead. Germany is due to seek bids for the right to operate the next wave of cellular services in May. On the premise that the German population is 50 percent bigger than that of Britain, the auction could generate more than $50 million for government coffers. France too, is due to hold an auction this year.
In Spain and Finland, by contrast, the governments handed out licenses for only nominal fees, but extracted agreements from cellphone operators to share resulting revenues with the state.
The results of the U.K. auction are almost certain to be followed by merger and acquisition activity; Vodafone is being forced by regulators to offload Orange, Britain's third-largest cellular firm, after acquiring its parent, Mannesmann.
France Telecom (PFTE) has publicly stated its intention to buy Orange, and the failure of NTL, in which France Telecom owns a 30 percent stake, will undoubtedly sharpen the French firm's interest. Other frustrated license bidders may also be interested in Orange: Spain's Telefónica, which was one of the casualties in the bidding battle, was recently reported to be considering a bid for the U.K. firm. 
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U.K. cellular auction
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