BERLIN — Shares of four big European cellphone operators fell Monday after they paid more than twice what investors had been expecting in a spectrum auction in the Netherlands, raising concern that a damaging bidding war could sap the industry.
The Dutch auction began Oct. 31 and ended Friday, raising 3.8 billion euros, or $5 billion, for spectrum that the companies plan to use for high-speed service using Long Term Evolution, or LTE, technology. But analysts warned that the sale, to be followed next year by a much larger spectrum auction in Britain, could herald a new round of expensive infrastructure levies that might restrict operators at a time when their sales have been stagnating.
The winners were KPN, the former Dutch monopoly; Vodafone, the British mobile group; the German company T-Mobile; and the Swedish operator Tele2.
LTE supports all of the typical high-speed applications, including audio and video streaming and Internet browsing, but is much faster, cutting download times and significantly expanding the capacity of existing networks to handle increases in data traffic.
After the bidding, KPN, which is owned in part by the Mexican communications mogul Carlos Slim Helú, canceled its dividend for 2012 and lowered its projected investor payout for 2013 to cover the 1.35 billion euros the company spent in the auction.
On Monday, the first day of stock trading after the completion of the auction, shares of KPN fell nearly 15 percent in Amsterdam, the steepest drop in more than a decade. Shares of Vodafone were down 1.7 percent by the close of the day in London. Shares of Deutsche Telekom, the parent company of T-Mobile, fell 0.3 percent in Frankfurt, and shares of Tele2 declined 1 percent in Stockholm.
“The money raised in the Dutch auction was a lot more than investors were expecting,” said Phil Kendall, an analyst at Strategy Analytics in Milton Keynes, England. “The concern now is that the sums will now be so great the technology will be unprofitable.”
Mr. Kendall said mobile operators were eager to obtain additional spectrum because extensive bandwidth had become increasingly critical to handle the explosion of mobile Internet data, which is testing the capacity of some carriers’ grids and causing overloading.
“Really, for many operators, the only way they will be able to differentiate themselves from other operators is by having enough spectrum to manage the demand on their services,” Mr. Kendall said. “That is why there is such intense interest in buying more frequency.”
More radio spectrum, or wireless network capacity, is crucial to delivering the high speeds advertised for LTE, which theoretically can produce download rates of up to 300 megabits per second on a wireless connection. Such speeds and the expanded capacity of the networks are considered essential to support the rapid expansion of the wireless Internet, as well as the increasing use of mobile grids for robotic communication between devices.
Speeds on the first generation of LTE networks activated in Germany, South Korea, Sweden and the United States have averaged much less, generally 10 to 25 megabits per second, in part because operators do not have enough spectrum to exploit the technology’s full potential.
The Dutch auction also raised the specter of another costly round of infrastructure fees on the cellphone industry similar to those in 1999 and 2000, when operators paid billions for the first European 3G mobile licenses.
Investors were concerned that the Dutch prices could set a precedent for auctions planned in Britain and perhaps Poland next year, as well as others that will be held across Europe over the next five years, as bandwidth is freed up and sold by national governments to wireless carriers. Germany, which held its latest spectrum auction in 2010, has indicated that it may hold another in 2016.
Those license sales in 1999 and 2000, engineered in most cases by governments to extract the maximum from mobile operators, led to large profit write-downs by operators including Vodafone and Telefónica, which owns the carrier O2.
With completion of the Dutch auction, the focus will now shift to Britain, where the sector’s regulator is planning to begin its spectrum auction in January.
All four British mobile network operators are expected to bid: Everything Everywhere, the venture of Deutsche Telekom and France Telecom; Vodafone; O2 U.K.; and 3, a unit of Hutchison Whampoa. The former landline monopoly BT has not ruled out a potential bid, which could further raise the stakes.
Matthew Howett, an analyst at Ovum, a research firm in London, said the British auction could raise £2 billion to £4 billion, or $3.2 billion to $6.5 billion.
“The £2 billion to £4 billion range that is widely touted is based on similar auctions elsewhere in Europe,” he said. “There is nothing to suggest that the U.K. should be any different. It’s possibly the most competitive market in Europe and all existing operators will want to make sure they walk away with spectrum to feed the almost insatiable appetite we in the U.K. now have for data.”
This article has been revised to reflect the following correction:
Correction: December 17, 2012
An earlier version of this article erroneously stated the amount paid by KPN for spectrum in the auction. It was 1.35 billion euros, not $1.35 billion.
European Mobile Stocks Fall After Costly Spectrum Auction
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