3G mobile auction raises £22.5 billion

The government's auction of licences for the next generation of mobile phones has raised £22.5 billion, far more than anyone expected.

The auction closed on 27 April after seven weeks and 150 rounds of bidding. Five licences were sold to operate third generation, or 3G, mobile networks.

Who won?

The largest licence was won by TIW, a Canadian-backed company, for £4.38 billion. The other four went to Vodafone, BT, One2One, owned by Deutsche Telekom, and Orange, for between £4 billion and £6 billion each. Vodafone paid the most, almost £6 billion.

The licences will allow the companies to build networks offering fast internet access on mobile phones, as well as video calls and other services.

A windfall for the Treasury

The Treasury had originally expected to raise a few billion pounds. The final total is equivalent to about £400 for every person in Britain.

The Chancellor, Gordon Brown, has said the money will be used to pay off part of the national debt, which will reduce the government's interest payments in future years.

The auction was designed by economists including Ken Binmore of University College London, who used game theory to create a system that encouraged competitive bidding.

Too much?

Some analysts have warned that the companies may have paid too much. They will need to spend billions more building their networks, and it is not clear how much customers will be willing to pay for the new services.

Shares in telecoms companies have soared in recent months, amid excitement about the internet and mobile phones. Critics fear the high prices could lead to higher bills for customers or delays in launching the new networks.

The companies say 3G will transform the way people use their phones, and that the investment will pay off.

Europe follows

Other European countries, including Germany, are planning their own 3G auctions. The British result has raised expectations that they too could raise huge sums.

The dot-com boom

The auction comes at the height of a boom in technology shares. Investors have poured money into internet and telecoms companies, pushing their values to record levels, although markets have become more volatile in recent weeks.

The first 3G services are expected to launch in Britain within the next two to three years.