France opts for wireless 'beauty contest'

Plan scraps potentially costly UK-style auction process
Written by Matthew Broersma, Contributor

The French government Wednesday reveals plans to distribute next-generation wireless (UMTS) licences, foregoing the auction system recently used in the UK for a "beauty contest" based on merit.

But there'll be a price to pay: winners will have to cough up billions of pounds, a price French telephone operators have already criticised as overly expensive.

The arrangement is supposed to address operators' fears that an auction system could spiral out of control, as some say it did in the UK, ending up by saddling the winners with debts that will jack up the prices of new mobile services.

But the four winners of the contest will have to pay fees of 32.5bn francs (about £3.1bn), half to be paid in 2001 and 2002, and the rest over the following 13 years. The UK auctions resulted in license fees up to 30 percent higher.

French officials say the pricing is a matter of placing an appropriate value on what are, after all, public assets. But the cash influx -- 65bn francs in the next two years -- comes at a politically sensitive time, as the Socialist-led government struggles with a budget deficit ahead of 2002 elections.

The plan was criticised by the likes of Vivendi and France Telecom; SFR, France's number two mobile operator, which is controlled by Vivendi, may sue the government.

Analysts say the arrangements could have been worse, pointing out that, considering the long period of repayment, the French licenses will cost about £159 per capita, far less than the average of about £345 per capita paid by UK bidders.

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