Mobile auction saga reaches £22.5bn conclusion

After nearly seven weeks of aggressive bidding, the auction for third generation (3G) UMTS licences in the UK is over, with the UK Treasury getting its hands on a £22.48bn windfall.

The most expensive licence went to Vodafone for almost £6bn, while BT, Orange, One2One and new entrant TIW will pay around £4bn. NTL was the final operator to drop out of the race early yesterday morning.

However, the final price tag of the five licences - which is more than four times original expectations - has raised fears that the operators will have no choice but to pass that cost on to the customer.

The Telecommunications Managers Association (TMA) said in a statement: "The cost of the new networks, with at least another £3bn on top of the bids, will affect the prices charged to customers. These are certain to be inflated if the winners of the auction are to avoid bankruptcy."

But speaking to Silicon.com, ecommerce and small business minister Patricia Hewitt claimed she was confident those costs would not be passed on to the consumer.

She said: "The companies aren't going to be pricing third generation mobile on the basis of what they paid for the licence, they will be pricing it on the basis of what consumers will pay. We've got an intensively competitive market particularly because we brought in a new entrant."

However, according to ebusiness consultancy, the Smith Group, which advised the government on selling off the spectrum, operators would have to charge £200 a year per customer for 20 years before they could break even on the cost of rolling out UMTS services.

Andrew Layton, a consultant at Cluster Consulting, agreed with Hewitt but warned that the high costs could restrict operators from rolling out innovative services in comparison to their European counterparts who have opted for the "beauty contest" method, in which licences are not awarded on the basis of price.

Andrew Peck, marketing director at the Smith Group, agreed: "While competitive pressure will mean they have to keep prices down, British consumers will pay more than in a country where licences were sold by beauty contest."