The German government is considering cutting the number of mobile phone licences on offer in next month's auction amid fears that consolidation among telecommunications operators will greatly reduce such proceeds across Europe.

A similar auction in the UK raised £22.5 billion (€35.2 billion) in April, but worries about the ability of companies to recoup such costs knocked an average of 9 per cent yesterday off the share prices of Vodafone AirTouch, Nokia and Deutsche Telekom three of Europe's four largest companies.

This is prompting many to review their bidding strategies and team up with other operators to reduce costs.

Yesterday it emerged that MCI WorldCom, the US group that dropped out of the German auction on Wednesday, would instead bid jointly with Debitel. Debitel is partly owned by Swisscom, and the deal is likely to involve WorldCom taking a stake in the Swiss parent which could lead to a full takeover.

In the Netherlands too, where an auction for third generation licences begins next week, fears were raised yesterday that the sale of five licences will not generate enough competition because they could all go to the existing five Dutch operators.

Versatel, an Amsterdam listed company that is among eight approved bidders, called it a "closed shop arrangement" intended to maximise revenues for the state. It complained to the European Commission.

In Germany, similar worries are forcing the government to consider changing its auction model.

Four to six licences are on sale depending on which parcels of radio spectrum are bid for. This could be changed to increase competition.