How much is a licence to provide next generation mobile communications services in Britain worth to a potential operator? The question has implications beyond the UK.
The government is keen to encourage competition in the mobile sector.
Overseas ownership will be no barrier to participating in the auction for five licences now expected to take place in mid- to late 2000. Furthermore, the winning bids may give an indication of the values which could be expected to be achieved in other countries.
The UK is following the US lead in auctioning, rather than awarding, licences. The aim is two-fold: first, to raise funds for the Treasury and second to provide a rational means of spectrum allocation.
The Department of Trade and Industry is thought to expect at least £ 1.5bn from the auction, suggesting individual licences could fetch in the region of £400m-£ 500m.
However, PA, the London-based consultancy, estimates the potential value of the UK market for next generation mobile services at between £20bn and £30bn.
Its calculation is based on the £3.15bn - or £1,600 per subscriber - which British Telecommunications paid Securicor earlier this year for the 40%of Cellnet it did not already own.
Tim Devine of PA argues that the BT price undervalues Securicor's share of Cellnet by about £1,600 per subscriber. He arrives at this figure by comparison with the market value of other UK cellular operators which, he says, values each subscriber at about £3,200.
During the negotiations, BT had the advantage in that it alone, as majority stakeholder, could decide whether Cellnet would bid for a next generation licence or not.
Mr Devine argues that Securicor was prepared to accept the lower value because of this threat. So, he concludes, the total value of the next generation market will be £1,600 multiplied by the number of subscribers in the UK - say about 17m - giving a total value of £27bn.
Mr Devine's calculation is, of course, a back-of-an-envelope estimate and many may want to take issue with the logic of his analysis. Nevertheless, it is clear that operators will have to gamble huge sums - infrastructure costs alone are likely to top £1bn each - to take part in the new services.
Or as Mr Devine puts it: 'This is the first pointer that the UK auction is likely to be more exciting than previously expected.'
But will the gamble be worthwhile? The problem is that while next generation technology - known as W-CDMA - will bring broadband services including internet access and full motion video to a broad range of mobile devices it is not yet clear how much subscriber demand exists for these innovations.
Furthermore, many of the more attractive options - internet access, e-mail and so on - can already be provided by existing GSM technology and its extensions. All of this is given added point by the entry into the sanctuary of Chapter 11 of US bankruptcy proceedings earlier this year of Iridium and ICO, pioneers in global mobile telephony using satellite technology.
Theirs was a high ticket gamble involving up-front investment of billions of dollars. They reasoned that there would be enough subscribers for a hand held phone service capable of reaching any point on Earth to support two, or possibly three, operators. In the end, there may not be enough to support one.
Iridium, in particular, had been guilty of pricing, marketing and distribution errors, but the real difficulty was that there had been huge advances in conventional mobile phone technology in the years since the global satellite service was first conceived.
There are now only a few places where GSM cannot reach and most of these can be easily catered for by existing satellite services using transceivers about the size of a personal computer.
What lessons can potential next generation operators draw from the experience of the satellite operators? Principally, that it would be a mistake to assume there is a demand for these new services that cannot be satisfied, for the moment, by existing technologies. Wireless Application Protocol (WAP) will, for example, satisfy most demands for internet access.
GSM can already transmit and receive basic video images. There is probably a niche market for satellite phone services to hand portables. And the market for next generation services may be as large as PA predicts. But it may come to fruition further down the road than anyone envisages at present and operators would be wise to scale their bids accordingly.
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