Eircom to dig deep as UK auction for high-tech mobile licences opens up

Eircom may have to bid at least £1 billion sterling to win a high-tech new generation mobile licence in Britain. Thirteen groups are vying to win five licences in an auction which begins today.

The move, if successful, would mark Eircom's first major foray into an overseas market and would also change the company from being a voice-based operator to a mobile one.

At present, 75 per cent of Eircom's revenue comes from its fixed-line business, but winning a licence would quickly mean that most of its revenue would come from mobile business.

It would also have implications for the company's valuation, according to analysts. Mobile operators command far higher premiums than traditional, voice-based operators.

But the competition is fierce. Among those lining up for the licences are NTL - which bought Cablelink for £535 million (€680 million) last year - British Telecom, Vodafone, Orange and Worldcom.

Eircom will also need deep pockets. Aside from paying for the licence, rolling out a network could cost up to £2 billion. The winners have to cover 80 per cent of Britain's population by 2007.

One of the five licences is reserved for newcomers to the UK market. Nine companies, including Eircom, qualify under this banner. This licence spectrum, at 35 megahertz, is expected to generate the most interest and attract the highest bid, although bidding for it will open at £125 million sterling (€206 million).

If Eircom succeeds in making the highest bid, it will not need all the capacity the licence offers. It could then sell on that spare capacity, bringing in another revenue stream.

Conversely, should its bid fail it might strike a deal with the successful applicant to buy its spare capacity. The company using the spare capacity would be known as a mobile virtual network operator. It would allow another operator to operate its own network without having to build one.

The new licences, known as universal mobile telecommunications systems (UTMS), will enable operators to offer a far wider range of services. They will allow mobile phones to make calls, receive faxes and remain on office networks simultaneously. They will also be able to download pictures, music and data up to 200 times faster than at present.

Many GSM users are expected to migrate to the new systems. At present, around 40 per cent of the British population have mobile phones. One source said winning the licence would give a company such as Eircom immediate access to four to five million customers.

About 20 Eircom staff, working on the bid for the past six months, formed a subsidiary - 3G - about eight months ago. The name is shorthand for the licences terminology - third generation.

The managing director of Eircom International, Mr Hans Wagenaar, told The Irish Times that Eircom would "bid aggressively but sensibly". He declined to be drawn on how much the licences might fetch.

He said Britain was an extension of Eircom's home market and denied suggestions the company could be heavily outgunned by stronger international players prepared to pay more for the licences.

"All of the players need to develop a business case, based on what they think the licences are worth now and what they can create with it. If we assume that everybody is bidding realistically then we have a chance to be a winner," he said.

Mr Wagenaar said funding the licence would not be a problem. The company could take equity partners at a later stage, he said, and could link up with other telecoms infrastructure builders and content providers.

The bidding process is extremely complicated. Each group can bid for one licence at a time. Each day the Radio Agency running the auction process will reveal the bids.

Bidders can target one licence at a time but may switch to bidding for a different licence if they wish. They may also re-enter the bidding for a particular licence at any stage.

Each bidder will have 20 minutes to make the next bid. Around two bidding rounds will take place each day and the process will take four to six weeks.