It is easy to see why the UK government chose to auction off 28Ghz Broadband Fixed Wireless Access (BFWA) licences, after netting a £22.5bn profit from the sale of third generation (3G) licences earlier this year.
While the BFWA bids are not expected to hit those giddy heights, with starting prices for different regions ranging from £100,000 to £4m, the treasury can, however, expect to earn at least £78.3m from the deal.
But the worry now for network managers is that overpriced licences will lead to more expensive wireless broadband services. If the services are too costly for companies to adopt, there are fears that the growth of such technology could be stunted.
As a result, a spokesman for the Telecoms Users' Association condemned the auction process and said that an alternative so-called 'beauty contest' was preferable because it would enable companies to put forward more detailed accounts of how they would run services and what infrastructure they would put in place.
"It is the government's duty to encourage the rapid development and deployment of BFWA, not by imposing an indirect tax on the industry - which will inevitably be passed on in the form of inflated prices to consumers - but by adopting a benign regime for the allocation of spectrum," he said.
Impressing the panel
And Norweb Telecom, which is bidding for one of the BFWA licences, does not think they should simply be awarded to those companies with the most cash. The supplier has been testing a service on 10Ghz wavelengths and feels confident it can impress the selection panel.
Dave McKone, Norweb Telecom's radio technology development manager, said: "We don't want to see the kind of bidding that has been happening for 3G services. We'd prefer a beauty contest where companies with the best business plans get the contracts."
The Radio Communications Agency, which manages the UK's radio spectrum, admits it considered various options for selling off 28Ghz licences, including the beauty contest approach. But in a report on the two processes, it concluded that auctioning would make it easier to keep the selection procedure objective, non-discriminatory and transparent, as is required by the European Commission Licensing Directive.
"Because of this, there is the possibility of appeal against non-selection, leading to judicial review, which would delay the award of licences," the report found. "Beauty contests favour established companies who can cite a track record in support of their case."
The agency decided that an auction "places spectrum with those who value it most and are therefore likely to develop it most effectively".
The auction process
Kim Howells, the minister for competition and consumer affairs, who announced the start of the auction process, claimed that it provides "a fast, transparent, fair and economically efficient way of allocating the scarce resource of radio spectrum".
A spokeswoman for the Department of Trade and Industry added that an auction would allow the market to determine the right price for licences. "I don't think you can compare it to 3G and we're not expecting the proceeds to be anywhere near that figure," she said.
But prices are expected to vary depending on region. A London licence will cost at least £4m and all others at least £1m - except for Northern Ireland, which will start at just £100,000. Each licence will be valid for 15 years and provide for bandwidth of two times 112Mhz.
To try and offer some guarantee that services will be rolled out efficiently by the winning bidders, the government has also added 'use it or lose it' conditions to the contracts. This means that operators will need to provide services to 10 per cent of local units by 30 June 2002 or face having their licences revoked.
In the opinion of Eddy Murphy, a research analyst at Analysys, however, the most important selling point to users will be pricing. "There may be other stumbling blocks for companies such as security or the inconvenience of having an antenna installed, but it will very much depend on the price the service is being offered at," he claimed.
But Tim Johnson, principle analyst at Ovum, said: "There is a substantial opportunity with broadband wireless. It is an attractive technology that is fast to install and very flexible. The cost per user may be high, but the overall model may show big savings."
As a result, he expects to see a lot of competition between wireless and digital subscriber line (DSL) suppliers, although he believes that wireless technology has a lot of advantages that may make it more competitive. "Suppliers may offer the same prices that are offered for 2Mbps over DSL, but give users the ability to burst up to much higher rates, even if this is not guaranteed," he said.
Overall winner
Whatever the outcome and whether you are an advocate of either the auction or the beauty contest approach, it would appear that one winner has already emerged before the first round has even started.
The government must surely be grateful to all those companies busily pushing up the market value of licences and its only regret is likely to be that, unlike wireless licences which last for 15 years, another 3G cash windfall won't be on the cards for another 20.
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