Bidding fever is set to hit the UK telecoms market again next month, when the Department of Trade and Industry (DTI) auctions off radio spectrum for 42 regional Broadband Wireless Access (BWA) licences.

The new licences will mark a further step in the government's bid to drive competition into the telecoms sector via technologies that bypass the local loop. They will pave the way for the rapid development of point-to-multipoint wireless networks based on proven broadband fixed wireless technologies such as LMDS (Local Multipoint Distribution Service).

Under the terms of the UK allocation, licences will be parcelled into chunks of 2x 112MHz per licence, with three licences available for each of 11 national regions, plus another three apiece for Northern Ireland, Scotland and Wales. Reserve prices have been set at between £100,000 and £4m, and the exercise is expected to raise about £1bn. Bidders include Energis, Orange Personal Communications Services, Norweb Telecom, Atlas Communications and FirstMark Communications.

As a means of providing fast, low-cost fixed services, point-to-multipoint systems offer a number of advantages over rival cable-based technologies, such as DSL, including faster and cheaper network roll-out and higher potential bandwidth.

Because customer premises equipment is only installed once a customer has bought a subscription, operators can link their infrastructure investment closely to tangible revenue streams. Add to that the lure of bypassing interconnect charges and colocation wrangles with other operators, and it is easy to see why the UK auction is generating plenty of interest.

For the moment, operators' push to maximise average revenue per user (ARPU) in an untried market, combined with technical limitations including the need for a clear line-of-sight between base stations and receivers and a low service range per base station, seem certain to restrict service to the SME market, at least initially.

"BWA really becomes economical at 4Mbps-10Mbps, where it offers a cheaper alternative to leased lines," says Julian Lake, an analyst with PA Consulting in London, who adds that most operators will be looking to integrate the new technology into a broader portfolio of high-speed services, including DSL and conventional fast leased lines.

In the US, where LMDS service has been available for five-or-so years, uptake has been disappointing, a situation Mr Lake says is unlikely to be repeated in Europe thanks to better equipment, more realistic business strategies and a big demand for broadband services. "Initial US services tended to be pitched to the wrong market, and low equipment volumes mean infrastructure was much more expensive," he says.

The support of a growing number of vendors, from giants such as Alcatel, Lucent Technologies and Siemens, to smaller developers such as Floware and SpectraPoint, along with a recent spate of BWA licence allocations in high-value markets including France and Germany, means there's likely to be plenty of candidates for UK licences when they go under the hammer next month.

Broad range of operators

Potential bidders include broadband wireless specialists FirstMark, Winstar and Formus, cable operators NTL and Telewest, boutique operators such as Energis, existing spread spectrum wireless operators such as Tele2, telcos who found themselves squeezed out of April's 3G licence auction, and even BT, which could use the technology to circumvent limitations in its own legacy systems.

Unlike the rest of Europe, which established BWA services in the 26GHz band, the UK will issue its first round of BWA licences at 28GHz. Each licence will be valid for 15 years.

For operators, the UK decision to adopt a non-standard approach could mean higher equipment costs, which could be passed on to consumers in the form of more expensive subscriptions.

In addition, many say the DTI's decision to allocate licences through a US-style spectrum auction rather than the comparative selection process favoured by most other EU members is likely to result in higher prices for UK users.

While the DTI is adamant the decision will merely guarantee fast service roll-out (as winning bidders move quickly to recoup their costs), others see it as a cynical move to boost treasury coffers at the expense of operators and, ultimately, consumers.

"BWA is new to Europe and needs to be given space to grow," says Bernie Dvorak, interim chief executive of Netherlands-based Formus, a potential UK bidder currently trialling service in Belgium, France and Hungary.

"While we're not expecting a repeat of UMTS prices, allocating licences in a way that keeps subscription prices low would have helped convince customers of the value of this technology," he adds.

Lynn Forester, co-chairman of FirstMark Communications, confirms her company will be "aggressively pursuing UK licences" as part of its pan-European network strategy, but is also critical of the decision to simply award licences to the highest bidder.

"A beauty contest is a better method, because it selects winners on the basis of their ability to deliver service to the consumer. Auctions are only about the deepest pockets," she says.

Phil Evins, managing director of the London-based European Competitive Telecommunications Operators Association (ECTA) agrees. "The UK government says it's committed to making broadband service cheap and accessible, yet it has initiated a process that's certain to drive up prices.

"Auctions allow big companies to buy market share at the expense of smaller, more innovative players," he adds.

Others, such as Phil Blades of Cap Gemini Ernst & Young, are concerned that the government's unwillingness to tie licences to broader service commitments could well leave some areas without access, as operators cherry pick licences in lucrative business districts, such as London or Manchester, and leave areas, such as Wales or Northern Ireland, fallow.

The decision to opt for an all-regional approach rather than set aside one or more national licences has also come under fire.

"A region-by-region approach might work with a residential technology, but we're talking about a system that is focused squarely on the business market," says Alistair Henderson, director, technical applications with Energis.

"Most companies need high-speed connectivity between a number of widely distributed branch offices, meaning operators would need to have secured licences covering most of the UK to be able to offer an effective service," he says.