Telefonica Hedges as 3G Stakes Increase in U.K.

LONDON (04/07/2000) - The bidding for third-generation (3G) mobile licenses stopped in the 106th round yesterday after the bidding arm of Spanish telecommunications company Telefonica SA took its second waiver.

The waiver came as the combined high bids for the five licenses surpassed 14 billion pounds. According to the auction rules, when there are eight or fewer companies remaining in the auction, each company is entitled to call for one recess day. If called after 2 p.m., a recess day includes the remainder of the present day as well as the next day.

Although it is not clear who called for the recess, the move came immediately after the Spanish company exercised the second of three waivers each company is allocated. Each waiver allows the company to sit out one round of bidding.

There are now a total of eight companies 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 (bits per second) 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 were 13 companies in the bidding when the auction started last month, but as the least expensive of the licenses rose above 2 billion pounds this week, companies began dropping out steadily. [See "Nine Remain, as Bids for U.K. 3G Licenses Top $18B," April 4.]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 dropped out of the bidding on Monday. They were followed by 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. on Tuesday.

On Wednesday, Australian telecommunications company One.Tel dropped out of the bidding at the end of round 100, when the cheapest license was up to 2.33 billion pounds.

In the last week alone, the combined highest bids of the five licenses has been increasing by roughly 1 billion pounds per day, reaching 14.34 billion pounds yesterday as Telefonica took the waiver.

The eight remaining companies include the bidding arms of the four incumbent mobile companies -- British Telecommunications PLC, Orange PLC, Vodafone AirTouch PLC, and One2One PLC. The incumbents are not permitted to bid on License A, the license with the largest spectrum, which is reserved for newcomers.

However, there has been a great deal of speculation about the negative reaction of stockholders if companies fail to get their hands on a 3G license, bringing the current bid of License B, which is reserved for an incumbent, to 3.63 billion pounds, while the bidding for License A has only reached 2.87 billion pounds.

At the end of the 106th round yesterday, the top bidder for License A is TIW UMTS (UK) Ltd. -- a subsidiary of Canadian telecom company TIW -- with a bid of 2.87 billion pounds. License B is currently at 3.63 billion, with Vodafone leading the bidding. License C is at 2.54 billion, with the highest bid placed by One2One, while the bid for License D is currently led by NTL Mobile Ltd., a joint venture of cable company NTL and France Telecom SA at 2.71 billion. The current high bid for License E is by Orange, another 2G incumbent, at 2.59 billion.

U.S. giant MCI WorldCom Inc. is also in the auction, but does not bid again until next round.

The auction continues on Monday.

More information on the auction, including most recent bids and a round by round recap, can be found online at

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More about British TelecommunicationsCrescent WirelessEircomEpsilon InteractiveFrance TelecomGlobal CrossingMCIMCI WorldComNTLNTL MobileOne2OneOne.TelSoneraTelefonicaUMTSVodafoneWorldCom

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