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Blu faces $1.7B penalty
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October 24, 2000: 11:16 a.m. ET
BT-led company's early exit from Italian mobile auction may cost its deposit
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LONDON (CNNfn) - The Italian government, reeling from the embarrassment of a flopped auction of third-generation mobile-phone permits, plans Tuesday to withhold a 4 trillion lire ($1.73 billion) deposit that British Telecommunications PLC and its Italian partners lodged before abruptly dropping out of the bidding Monday.
Blu, 20 percent owned by the British telecom company, backed out of the auction of permits to operate advanced cell-phones amid a wrangle among its owners about who would foot the bill for the permit. Blu's Italian investors tried unsuccessfully to reduce their exposure to the cost of buying a license by persuading BT to raise its stake in Blu to 50 percent.
The withdrawal of Blu after just three days of bidding left just five participants in the auction seeking the five licenses on offer and cutting the process short, well before bids had reached anticipated levels.
Italian Prime Minister Giuliano Amato called an urgent ministerial meeting late Monday to see whether the auction could be rerun, because the sale proceeds of only  12.2 billion ($10.1 billion) were disappointingly below analysts' expectations of 25 billion and the government's 21 billion forecast.
The ministers decided not to rerun the auction. But the government said it will try to retain the deposit lodged by Blu and might even seek further damages.
"Blu firmly rejects any hypothesis or suspicion of incorrect or irregular behavior or that it violated the obligations of confidentiality which may be at the basis of (the government's intention) to retain the deposit," Blu said.
 For its part, British Telecom told CNNfn.com that it "acted in good faith throughout the auction and would examine the government's decision in detail" before commenting further. Shares in BT (BT-A) surged almost 12 percent to 791 in late trade Tuesday.
The government's decision meant that current Italian mobile-phone market leaders Telecom Italia Mobile SpA and Vodafone Group PLC's Omnitel each won a third-generation license. The companies together account for 90 percent of the market.
The other companies that won licenses are: Wind, a joint venture between France Telecom and Italian power company Enel SpA; Andala, which is controlled by Italian Internet service provider Tiscali SpA and Hong Kong-based telecom conglomerate Hutchison Whampoa Ltd.; and IPSE, a unit of Spain's Telefónica SA and Finland's Sonera Corp.
The Italian government also ruled out the possibility of Blu linking up with new license winners in the near-term.
"I exclude the possibility of either Blu's partners or of Blu itself linking up with other (UMTS) consortia in the immediate future," Communications Minister Salvatore Cardinale told the Italian upper house of parliament.
Italy's political opposition movement, the Freedom Alliance coalition, called for Amato to step down, the newspaper la Repubblica reported. The government, however, blamed Freedom Alliance leader Silvio Berlusconi for sabotaging the auction.
Berlusconi controls Italian television company Mediaset SpA, which owns 9 percent of Blu.
The main shareholder in telecom operator Blu, Austostrade challenged British Telecom to put up more money or quit the consortium.
"There needs to be some clarity between shareholders; there need to be shareholders who are compatible and cohesive," said Vito Gamberale, chief executive of highway operator Autostrade, which has 32 percent of Blu. "If we can't succeed in finding an accord, then there is always separation."
Other shareholders in Blu include the Benetton family's Edizioni Holdings and Distacom, each with 9 percent, and Caltagirone SpA, Italgas and Banca Nazionale del Lavoro SpA, with 7 percent each.
Third-generation mobile phone technology is considered the hottest section of the cell-phone industry because it offers the potential to create new revenue-earning services, such as Internet and email access and video conferencing. 
-- from staff and wire reports
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