FRAMINGHAM (04/27/2000) - The U.K.'s spectrum auction for next-generation wireless applications ended today, with winning bids totaling $35.4 billion, a staggering sum that industry analysts said has "enormous" implications for similar auctions that are expected in the U.S.
If telecommunications companies follow similar pricing models in their fight for new spectrum in the U.S., that bidding war could end up costing them a total of more than $1 trillion.
Based on a U.K. population of 59 million people, the value of the new spectrum that carriers need to offer wide-band Internet services works out to $59 per person. That figure is far above the $40-plus per person that start-up wireless companies bid in the last U.S. cellular auction, according to Bob Egan, an analyst at Gartner Group Inc. in Stamford Connecticut.
"This is going to have a direct impact on the U.S. auctions," Egan said, adding that he is still "crunching numbers" based on that $59-per-person benchmark to estimate the likely prices for the U.S. spectrum. But multiplying the total U.S. population of 275 million by the price the U.K. auction yielded works out to $1.6 trillion.
London-based Vodafone Air Touch PLC, which recently formed a wireless joint venture in the U.S. with Bell Atlantic Corp. in New York, submitted the highest winning bid in the U.K. at $9.4 billion. It was followed by TIW UMS (UK) Ltd., a subsidiary of TeleSystems International Wireless Inc. in Toronto, with a winning bid of $6.9 billion.
Despite these high prices for what is essentially the raw material of any wireless business, Egan said the carriers can't afford to raise prices because of what he called "aggressive competition" in the wireless industry.
The U.K. spectrum battle ended when NTL Mobile Ltd., a joint venture of France Telecom SA and NTL Group Ltd., dropped out of the auction, leaving five companies out of an original field of 13 bidders for the five available licenses. The other winners were British Telecommunications PLC, One2One PLC and Orange PLC, all based in London.