LONDON (04/04/2000) - And then there were nine. SpectrumCo Ltd., the consortium consisting of Finland's mobile operator Sonera Corp., among others, and Epsilon Tel.Com PLC, a wholly owned subsidiary of Japanese finance house Nomura Securities Co., Ltd., today dropped out of the bidding for five third-generation mobile phone licenses on auction in the U.K., following two companies that dropped out yesterday as the bidding price of the least expensive of the licenses rose above 2 billion pounds (US$3.2 billion).
U.S.-based Crescent Wireless Ltd., backed by Global Crossing Ltd., and 3G (UK) Ltd., the bidding arm of Irish telecommunications incumbent Eircom PLC, both folded yesterday, either unwilling or unable to continue bidding. The combined highest bids for the five licenses is now over 11.52 billion pounds, with nine bidders left.
The companies are bidding for control of 3G, or UMTS (Universal Mobile Telecommunications System) licenses that are good for 20 years. The third generation of mobile phones can provide data rates of up to 2M-bps, in addition to voice, fax and data services. This makes it possible for companies to offer services such as banking and high-resolution video over a mobile phone.
There are currently four licensed second generation, or 2G, carriers for mobile phone services in the U.K. The government has decided that in auctioning 3G licenses, it would sell five licenses, dubbed "A" through "E." License A -- the one with the largest spectrum -- is open only to new players to increase competition.
Some analysts don't think that the auctioning process the U.K. government is using is the best model to follow. "It's a really absurd process; by having this huge revenue stream going from the industry into the government, you're really taxing the future users of these systems," Bernt Ostergaard, Denmark-based analyst with Giga Information Group Inc., said.
The other model, which is the method of choice in Scandanavian countries, is the "beauty contest" model, in which the license holders are picked by viability and pricing models. Finland just used this method to select the 3G license holders, while Sweden and Denmark will be using the same process this summer when those countries choose licenses 3G carriers.
"Compare that with the brute force model, where you're not really getting the best service providers, you're getting the most money," Ostergaard added.
There is no debate that the auction is certainly doing that. At the end of the 98th round today, the top bidder for license A is TIW UMTS (UK) Ltd. -- a subsidiary of Canadian telecom company TIW -- with a bid of 2.32 billion pounds. License B is currently at 2.46 billion, with 2G incumbent Vodafone Ltd. leading the bidding; License C is at 2.18 billion, with the highest bid placed by NTL Mobile Ltd., a joint venture of cable company NTL and France Telecom SA.
License D is currently a tie bid between the bidding arms of incumbent carriers British Telecommunications PLC (BT) and One2One PLC at 2.28 billion pounds. The highest bid for License E is currently being offered by the bidding arm of Orange PLC, another 2G incumbent, for 2.33 billion pounds.
The other three companies remaining in the battle are the bidding arms of Australian telecom group One.Tel, Spanish telecom company Telefonica SA and U.S. giant MCI WorldCom Inc.
"What it all comes down to is the one who gets the UMTS license fee gets a license to print money," added Ostergaard.
More information on the auction, including most recent bids and a round by round recap, can be found online at http://www.spectrumauctions.gov.uk/.