Suddenly everybody wants to own a mobile phone company. Thirteen bidders - nine new entrants - have each laid £50 million on the table to join the auction for five third generation broadband mobile licences.

The scale of the interest confirms that mobile fever remains red hot - a successful mobile licence is effectively worth between £8.4 billion and £20 billion to its owner if the recent sales of existing operators One2One and Orange are anything to go by.

The Department of Trade and Industry (DTI), which is organising the auction, must be rubbing its hands with glee. It wants to make a minimum of £500 million from the auction of the five, but given the number of players, a figure of £5 billion have surfaced.

Good news for the taxpayer for sure, but is the extra up-front cost going to benefit the industry or the consumer, who has to ultimately shoulder the burden in higher prices. It would be disappointing for a technology that is supposed to irreversibly change the rules of the communication game.

Talking about the third generation
Third generation mobile, dubbed 3G for short, allows high speed data transfer rates of up to 2Mbps against current rates of 9.6Kbps. It opens the possibility of proper multimedia services to handsets - a 3G device could effectively replace the Walkman, DVD player, pocket TV, personal digital assistant and mobile phone. To do that requires increased traffic across the network and lower, not higher, per minute bills to make it affordable.

Analysts sound a cautionary note. Ovum senior consultant Nicky Scott said: "There's a possibility that round by round, the bidding system could go out of control."

The new bidders read like the great and good of the global telecoms industry, and all have deep pockets to finance a bid.

The new entrants are:

The Virgin-led consortium, backed by Tesco and EMI, could be looked on as a favourite because of the established Virgin mobile brand.

What am I bid for this 3G licence?
The bid process actually lasts about two weeks and the DTI says 'indicatively' it will take place between 6 and 24 March, with a formal award in July. Each of the five licences will be treated separately, with the one with the largest band reserved for a new entrant. Further, the DTI says, bidders will only be allowed to chase one of the licences, enabling the four incumbents to stay apart.

But there is plenty of scope for escalation. Bids for each will be taken in rounds, although it is not clear how many. At the end of each round, the top bidder will not be allowed to bid again. In theory the nine new entrants will slug it out for the fifth licence, which, given the value of a mobile business, could escalate beyond the reserve price of £125 million.

Worries will emerge if the bidding cost adds a significant proportion to the costs of building out the network - estimated at around £2 billion.

A cautionary taleThere is an unfortunate precedent for this. In the United States, a special auction of spectrum for mobile phones for new entrants in 1996 went out of control aided by easy repayment terms.

The new firms bid a total of $10.2 billion for new licences, over three times more than a separate auction for existing telcos. The firms struggled to get backing to match their bids and subsequently went broke. They had to hand back their hard won spectrum to US regulators.

More interestingly, there are no guarantees for the existing four mobile firms, BT Cellnet, Vodafone, Orange and One2One. A rival with a grudge could try to knock one of the existing players out.

The bid structure makes this a highly risky strategy, however. A 3G licence is in theory more valuable to an existing incumbent than a new entrant. An incumbent's market value would seriously suffer, and it would be obliged to outbid. But with 9 new players chasing one licence, a risk taker might want try it.

The final risk is whether 3G will live up to its multimedia promises and draw substiantial revenue for new services.

Ovum's Nicky Scott said: "This is an expensive business. At the same time there's an emerging scepticism about how much money will be made from 3G. All people are used to using their mobiles for is phone calls."

The UK is mad for mobiles
On the other hand is the boost that fixed line carriers have had from ever-increasing Internet traffic. Thirty per cent of BT local calls are now Internet related.

And Britain's enthusiasm for mobile phones remains. Virgin mobile, a virtual new entrant which piggybacks on One2One's network, has racked up 120,000 subscribers since its launch on 18 November.

But if projections are too optimistic, consumers may have to foot the bill - and as the Internet experience shows, the UK consumer market is highly price sensitive. Common sense, not a desire to win at all costs, is what's required to succeed in the long term.