Eircom will seek to become a mobile virtual network operator of third-generation mobile phones (3G) in Britain by buying airtime from either Vodafone or TIW UMTS, the successful bidders for licences A and B in the British auction.
It is understood the company will attempt to buy 15 MHz of spectrum, likely to be worth more than £2 billion sterling (€3.2 billion). The possibility of entering into a partnership with another telecoms operator to secure the deal is an option being considered by Eircom.
A spokesman for Eircom confirmed last night that approaches to begin negotiations with the two companies would begin in the next few days.
"We will proceed to become a mobile virtual network operator, if we can extract the right commercial deal which adds value to our business," he said.
The British Exchequer scooped £22.5 billion from the marathon auction, which ended yesterday after 150 rounds of bidding and almost eight weeks of gradually rising stakes for the licences, which will allow for fast mobile Internet access, video services and what operators expect to be massive revenues.
Vodafone will pay out £5.96 billion for licence B, which offers the greatest capacity available to an existing British mobile operator. BT ended up with narrower licence C for £4.03 billion.
TIW UMTS will pay £4.38 billion for licence A, which has the widest spectrum but was reserved for a newcomer to the British market.
British operators One2One, owned by Deutsche Telekom, and Orange, set to be demerged from Vodafone, took licences D and E respectively for just over £4 billion each.
The process ended after NTL pulled out in the last round.
The total price tag for the licences is over seven times initial forecasts and far exceeds any British privatisation. Some analysts reckon it is too much to pay for access to the third generation or UMTS (Universal Mobile Telecommunications System) technology.
Advances to companies involved in the auction were prohibited until the end of the contest but a team of Eircom staff, formed when the company withdrew from the auction, is believed to have developed a strategy for the negotiations.
Most experts consider that mobile virtual network operators require at least 15 Mhz to offer an efficient service to customers. Therefore only operators of the A and B licences are thought to have enough spectrum to allocate to other operators.
It is thought TIW UMTS, a consortium comprising Canada's Telesystem International Wireless and Hong Kong's Hutchison Whampoa, may be open to approaches by other operators as its bid exceeds its market capitalisation.
But a rush to buy airtime from successful bidders is only one fallout from the British auction. According to Dr Chris Doyle, telecoms strategist for the consultancy London Economics, the end of the auction will herald the start of a "second game" where companies focus on obtaining 3G licences through acquisition.
He said speculation now focused on the future of Orange, which is set to be demerged from Vodafone this year. He said it was likely to become a takeover target of several companies such as French Telecom (which was behind the failed NTL bid), KPN, Telefonica, MCI Worldcom and possibly Japan's NTT.
Dr Doyle, who recently spoke at a conference on the introduction of 3G in the Republic, said the British auction format was probably a better method of deciding how to award 3G licences than beauty contests but, he added, "they were not necessarily the best method". He said the danger of auctions was that successful bidders paid too much. While the five UK licences meant more competition in the mobile market, prices charged by successful operators would "hit the floor" higher than they would have if there had been no auction, he added.
In comparison to Spain, which ran a beauty contest to award its 3G licences, operators in Britain might face liquidity problems, he added. He said this could slow down the roll-out of a network and the subsidising of handsets.
Mr John Burns of British firm Aegis Systems, which is advising the Office of the Director of Telecommunications Regulation on the introduction of 3G in the Republic, said rolling out a network in the UK would take between 18 months and two years and is estimated to cost between £2 and £5 billion sterling each.
Despite this time-lag, Mr Burns believes the introduction of 3G services will be successful. A consultation period for the introduction of 3G services in the Republic got underway recently. The competition is scheduled to begin in November, with licences to be awarded by February 2001. The regulator has said no decisions have been made on the type of competition or number of licences.
