It was to have been a latter-day Klondyke - an auction for five third-generation mobile phone licences in Europe's biggest mobile phone market. The auction was expected to last seven to 10 days, generating upwards of £20 billion (€25.4 billion) for the Italian exchequer. After just two days of bidding, it was all over. By Monday afternoon this week, the auction had ended, earning a "mere" £11 billion for the state. There had been only six original contenders and when one of them dropped out unexpectedly and controversially early, then, de facto, the party was over.
Stung by the apparent flop of the 3G auction, centre-left Prime Minister Giuliano Amato convened a four-hour emergency meeting late on Monday. Yet, both he and his ministers could do little other than validate the auction, whilst imposing a face-saving fine of £1.6 billion on the consortium Blu, the one that had prematurely dropped out.
Meanwhile, it was reported yesterday that magistrates had opened an investigation into the auction.
The chaotic end to Italy's 3G auction prompted an immediate political row with centre-right opposition forces accusing the government of gross incompetence. By way of reply, the centre-left raised the "conflict of interests" question again, pointing out that Blu contained none other than Mediaset amongst its shareholders. For the uninitiated, Mediaset is the company that controls most of the television, Internet and publishing empire of opposition leader, media tycoon Mr Silvio Berlusconi.
The chaotic end to Blu's bid for a licence left its major shareholders, fashion-wear giant Benetton and British Telecom, also exchanging bitter recriminations. BT was cast in the role of villain for having failed to honour promises to increase its stake in Blu.
To go back to the beginning, however. Ever since the centreleft government opted last April to hold an auction for UMTS (universal mobile telecommunications system) licences, commentators and government analysts alike had been predicting a bonanza pay-day for the state.
The reasoning was simple. Some 60 per cent of Italians, or almost 37 million people, use mobile phones, comparing favourably with Britain and Germany where cell-phone users total 52 per cent and 40 per cent. Given that similar auctions in Germany (for six licences) and in Britain (for five) had raised £40 billion and £30 billion respectively, then such exorbitant expectations seemed justified.
When Italy's three major cellphone operators, TIM, Ominitel and Wind, along with market newcomer Blu as well as two purpose-created consortia, Ipse and Andala, all confirmed that they would be competing in the auction, then the whiff of Klondyke fever was ever stronger in the air. Furthermore, the seriousness of the contest appeared to be further underlined when two would-be contenders, the consortia Anthill and Tu Mobile, were both ruled out because of alleged inconsistencies in their documentation.
In the aftermath of the auction's relative failure, not only accusations but conspiracy theories blossomed. Green deputy Mr Mauro Paissan said that the "whole thing stinks" whilst Rifondazione Communista leader Mr Fausto Bertinotti argued that the auction had been highly irregular.
Commentators wondered if there had been a cartel-type deal done which would see Blu join in with one of the successful five operators at a later date. Somewhat improbably, too, there were those who wondered if Blu had dropped out intentionally in order to embarrass the government. Certainly, centre-left candidate for prime minister, Mr Francesco Rutelli, did not let the presence (9 per cent's worth) of Mr Berlusconi's Mediaset group in the Blu consortium go unnoticed: "The problem (of a conflict of interests) came up today in mobile phones, tomorrow it will be television, insurance, newspapers or the construction industry," said Mr Rutelli, citing other areas in which Mr Berlusconi's Fininvest Group has significant holdings.
While the 3G auction chaos might have been good for a political barney, it is probable that business strategy differences rather than politics were at the root of Blu's decision to drop out. In reality, there had been concern about Blu's participation right up to the last minute with Communications Minister Salvatore Cardinale having to reassure the media about Blu's presence only last Wednesday.
The problems at Blu go back to the takeover by the Benetton group earlier this year of the formerly state-run motorway group Autostrade, which has a 32 per cent stake in Blu. Benetton found itself in the role of majority shareholder at 41 per cent (the Benetton-run Edizione Holding has a further 9 per cent of Blu).
From its entry into Blu, Benetton was reportedly keen to see BT increase its 20 per cent holding. Benetton's strategy was based on the belief that the major shareholder in such a consortium should be one involved in the core business i.e. mobile phones. In the case of the three major bidders, phone companies hold a major stake with Telecom Italia holding 60.1 per cent of TIM, Vodafone 76 per cent of Ominitel and France Telecom 43.3 per cent of Wind.
Much media play was made in recent weeks of an alleged promise from BT to up its stake to 51 per cent before the 3G licences were issued. Speaking on Monday, though, Mr Pat Gallagher, president of BT Europe, it said that BT had been prepared to buy an extra 1012 per cent but had, in fact, been pressed to buy 80 per cent at "an outlandish price".
The irreconcilable differences between the major shareholders prompted Blu to drop out of the auction, leaving the other five contenders to pick up their licences for much less than they might have expected. From the consumer viewpoint, this latter saving may prove beneficial since all contenders had made no secret of the fact that exorbitant auction costs, plus subsequent infrastructural expenses, would inevitably have to be passed on to the consumer. Perhaps, in the end, the exchequer's loss could be the consumer's gain.
