By BLOOMBERG

MILAN • Italy’s record US$7.6 billion sale of high-speed airwaves, while helping the populist government fund its election promises, gouges a chunk out of phone companies’ finances before they embark on costly network upgrades.

The two-week bidding process that ended late on Tuesday saw prices of some of the most coveted airwaves soaring as companies battled for a chance to offer the 5G services, which bring faster download speeds for videos and gaming, and will help to facilitate self-driving cars and connect a multitude of devices.

The industry’s final bill is more than twice what the government had expected and will leave investors wondering how the companies will turn a profit on 5G once the networks are installed. Telecom Italia SpA and Vodafone Group plc each committed to pay about €2.4 billion (RM11.59 billion) for the largest blocks.

The big winner from the auction is the Italian government, said Dhananjay Mirchandani, an analyst at Bernstein.

Telecom Italia and Vodafone will ultimately have the advantage over CK Hutchison Holdings Ltd’s Wind Tre and France’s Iliad SA, he said.

“Today, it stings. Longer term, the strategic benefit accrues to Telecom Italia and Vodafone,” said Mirchandani in a note.

Telecom Italia shares rose 2.6% to 49.5 cents in Milan at 9:29am yesterday. They fell 15% between the start of last week and Tuesday’s close of trading as the scale of the former monopoly’s 5G bets emerged. The shares are now trading close to a five-year low.

The most fevered bidding in the two-week auction focused on 3.7GHz airwaves that offer the strongest signals in built-up urban areas, according to a statement by the Economic Development Ministry. That piece of spectrum alone attracted about €4.35 billion.

Iliad bid €1.19 billion for smaller chunks in a sign the new entrant is committing to Italy, Wind Tre bid €517 million and Swisscom AG’s Fastweb only committed €33 million.

The carriers are required to pay a portion upfront this year, followed by instalments in subsequent years and the bulk of the fees are due in 2022.

Bloomberg reported previously on the record auction bids.

The auction outcome helps to replenish Italy’s public coffers in a year where investor concerns have centred around the country’s future in the euroarea after the Five Star Movement and the League — two Euro-sceptic parties — formed a coalition government.

The prices were the highest ever on a per-user and per-mHz basis for 3.7GHz spectrum.

South Korea had the previous record. Key bands of spectrum were relatively limited, helping to inflate the price.

The Italian industry will now have less cash to spend on antennas and radio systems once the auction is paid for. The 5G networks are designed to be denser and more equipment-heavy than current technology.

Italy’s biggest phone companies had threatened to boycott the sale because they said the bidding rules were too rigid and the starting price was too high.

The telecom industry body GSMA sees little growth in mobile revenue in most European countries over the next seven years.

Fierce competition and slowing subscriber growth has drained telecom companies’ profits and made them the worst performing equity sector in Europe, falling 26% in the past three years compared to a 10% gain on the broader Stoxx 600 Index.