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LONDON -- European markets sailed into a sea of red as the cost of the third-generation mobile phone licenses in Germany continued to rise and telecom stocks fell.

The

FTSE 100

fell below the 6500-point level and by midmorning the index stood down 39.8 points at 6492.20.

Telcos were dragged down by

British Telecom

(BTY)

, which shed 28p to 795 as it confirmed that it will take control of its German joint venture

Viag Interkom

. It seems that its erstwhile partner in the venture,

E.ON

(EON)

, did not want to put up the cash for the 3G license that Viag Interkom is bidding for.

Vodafone

(VOD) - Get Vodafone Group Plc Report

was also under pressure because of the concerns about escalating prices for the licenses. Vodafone shares slipped 9.5p to 272, enough to wipe around 26 points off the FTSE 100. Vodafone has consistently stated that the sale of

TheStreet Recommends

Orange

will cover its costs, but investors have no doubt focused on

Lehman Brothers'

downgrade of its March 2001 price target on Vodafone from 450p to 425p.

However, the research is not as bad as it first seems. "We believe this period of negative sentiment is reaching its conclusion and believe that investors should be taking advantage of current weakness to build positions in this must-own stock," the bank says. It also claims that the company is, "arguably the best positioned telco on a global basis".

Elsewhere in the sector,

Colt Telecom

(COLT)

plunged 84p to

18.51 ($27.74) to lead the FTSE 100 losses, and

Cable & Wireless

(CWP)

lost 27p to

11.20.

On the Continent, E.ON fell 2.45 euros to 56.50 ($51.54) and

Deutsche Telekom

(DT) - Get Dynatrace, Inc. Report

fell 1.22 euros to 45.69.

MobilCom

dropped 12 euros to 105 and its bidding partner in the mobile auction,

France Telecom

(FTE)

, was down 3.30 euros at 136.00.

The weakness fed though to phone makers.

Alcatel

(ALA)

was down 0.60 at 81.10 while

Nokia

(NOK) - Get Nokia Oyj Report

was marginally lower at 43.06 euros.

Europe's other stock markets were also lower. The

CAC 40

in Paris was down 58 at 6626 and the

Xetra Dax

in Frankfurt was down 59 at 7256. The

Neuer Markt's

tech-heavy

Nemax 50

index was down 56 at 5168.