French 3G woe could impact on UK

French auction flounders and where does that leave UK companies?

As one of the four bidders withdraws from the French 3G mobile phone auction blaming high prices, experts warn that the even higher prices paid in the UK could do serious damage to the economy and the UK's place in Europe.

The withdrawal of the joint bid from Telefonica and Suez Lyonnaise des Eaux is a further blow to the French government, which had hoped to pay off some of its debt with the money raised. It chose the 'beauty contest' system for allocating licences -- in which a set price is fixed and the winners are chosen on merit -- rather than employ the auction system used in the UK. Far fewer than expected firms have taken part in the process and two out of three of the remaining players have not committed to staying in.

Telefonica and Suez Lyonnaise des Eaux claim that the 4.95bn euros (£3.1bn) price tag was too great but this figure is just over half the amount committed in the UK's 3G auction in April 2000. Experts then questioned how firms would be able to afford to roll out services given the £22bn price tag paid for licences.

Matthew Nordan, research director at Forrester Research, believes that the price was far too high and could harm the UK economy, if 3G was to fail -- as some experts think possible.

It could even have political implications, he says. "The money committed is equal to two percent of the UK's GDP. If 3G bombs, it would have a big effect and would harm the bond market, and possibly the wider financial sector. We believe this could lead to a rift between the UK and continental Europe, if less British money was available to those countries," he said, referring to the UK's financial commitments to the European Union.

Nordan's concerns echoed a warning from analyst firm Bear Stearns, which claimed last November that over-investment in 3G threatens to stifle the development of next-generation wireless innovations and could even stall the economy.

Earlier this month, research from Forrester warned that the investment made by network operators in 3G would lead to a steep decline in earnings and industry consolidation.

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