Poland has cancelled its tender for third-generation mobile phone licences after only three bids were received for the five licences on offer.

The Telecoms Ministry said it would instead extend the 2G licences of Poland's existing mobile phone network operators - the three 3G bidders - to cover the new services.

The arrangements are intended to remove the danger of legal challenges, which had been threatened by several prospective bidders unhappy with the tender's terms and its handling by the government.

The messy end to the tender process is being seen as an embarrassment for the Polish government, which had hoped to raise 3.25bn euros ($2.87bn) from the licence sales but is settling for more than one billion euros less than that.

Fourth operator

Ministry officials said the operators would be charged 650m euros ($574m) each for the licence extensions - the same amount that had been sought for each licence in the 3G tender.

Poland's existing mobile phone operators are:

Polska Telefonia Cyfrowa, whose owners include Deutsche Telekom and Vivendi Polkomtel (Vodafone and TeleDanmark) and Centertel (France Telecom and Poland's TPSA)

"The chosen solution will allow the ministry to pick a fourth [3G] operator when legal and market conditions allow it," the ministry said in a statement.

However, under current legislation, this cannot be at least until 2002 as Polish laws forbid the awarding of any new mobile licences in 2001.

The three groups that did bid by last Saturday's deadline - whose shareholders include Deutsche Telekom, France Telecom, Vivendi and Vodafone - had themselves threatened to boycott the sale because of the way the government handled it.

'Too early for 3G'

After bidding, they renewed their calls for the tender to be cancelled.

The operators had complained that the high licence fee would make 3G mobile phones too expensive for Poland's developing market.

The average monthly wage is less than $500 and just 14% of the 39 million population have mobile telephones.

There is not enough capital in Poland to join such a costly long-term investment

Telecoms analyst

"It is too early for the third generation," PTC general director Boguslaw Kulakowski had said before the bid deadline.

"It would have been better to wait. The second generation has not yet used all of its possibilities."

The three bidders also objected to a condition in the tender requiring them to open their networks to future licence holders after they have installed infrastructure covering 30% of the country.

Several weeks ago, Polish authorities had been expecting seven or eight bids for the licences.

They blamed the eventual bid turnout on the weak situation of the European telecoms market as a whole.

Not enough capital

But the problem was not only with Europe, but with the ministry overestimating Poland's market, telecoms analysts say.

"There is not enough capital in Poland to join such a costly long-term investment," one analyst said.

"Foreign bidders were indeed interested in trying to forge partnerships with Polish companies to bid, but these companies are too poor."

Spain's Telefonica had tried to find Polish partners, as demanded by the tender requirements but, according to the Gazeta Wyborcza daily, the local companies could not obtain the necessary bank guarantees.

Italian operator TU Mobile had been lining up a bid with the Polish internet company 7bulls.com, but, according to media reports, had trouble securing sufficient financial backing.

Analysts say about $2.2bn will be needed to establish a 3G network in Poland, including the cost of the licence.