Current Account isn't really sure how the term "Dutch auction" came about, but judging by the way the British mobile phone licence auction is going it should be replaced by "British auction."
In effect, this auction will continue until only five bidders are left standing for the five licences on offer. The British Exchequer will be the main beneficiary of the auction for the five new third-generation mobile phone licences. But one has to wonder whether this extraordinarily convoluted and time-consuming process is the best way to allocate these third-generation (3G) licences which will allow users to use the Internet, download e-mails, music and pictures at high speed.
Chancellor Gordon Brown will probably pocket more than £10 billion sterling (€16 billion) from the sale of the licences - more than double the initial estimates. But the bidding frenzy - 80 rounds to date without a single withdrawal by any of the 13 bidders - has inevitably lead to speculation that whoever gets these licences will end up paying over the odds.
The likely upfront payment of more than £2 billion - apart altogether from the set-up costs for the new mobile phone system - will mean that returns from what is admittedly a huge growth area will take longer to generate. Eircom, of course, is enthusiastically involved in the bidding and at the time of writing had hiked its bid to more than £1.3 billion.
Conventional wisdom had it that by now most of the small players would have pulled out of the serious bidding, leaving the field to the four British mobile phone giants - Vodafone, BT's Cellnet, Deutsche Telekom's One2One and Mannesmann's Orange, with the other nine bidders, including Eircom, fighting it out for the new entrant licence.
But Eircom and the other so-called minor bidders haven't played ball and have become an almighty nuisance to the British big four, which now face having to pay an extraordinary price for third-generation licences that are absolutely essential to their longterm growth.
Quite simply, if any of the big four don't pick up one of the 3G licences, their shares will take an absolute hammering. On the other hand, if Eircom does manage to pick up a licence it would be an enormous boost to its stature in the market.
At the end of the day, most analysts believe that the big players will end up with the main licences - at a price, leaving Eircom chasing the A licence (bids currently at £1.2 billion and rising) reserved for new entrants to the British market.
Alternatively, there are suggestions that the big four British players may then be amenable to recouping some of their outlay by selling some of the capacity of their new 3G licences to unsuccessful bidders.
