Cable & Wireless





, owners of U.K. mobile phone operator


, may now have to get their bankers on the phone to potential investors.

With one of the two final bidders for the U.K.'s smallest mobile phone operator confirming it is no longer interested and the other reported to have dropped out, it looks increasingly likely that the One2One owners will have to abandon their preferred option of selling the company and instead float it on the stock market.

A Bid Too Far

German telecommunications firm



confirmed a report in Wednesday's

Financial Times

that it has pulled out of the bidding for One2One, saying the price tag of $17.5 billion was too high. The paper reported that the other bidder,

France Telecom


, had also decided to walk away. France Telecom was unavailable for comment because of Wednesday's Bastille Day holiday.

A banker at an investment bank representing one of the owners of One2One --

Merrill Lynch

for Cable & Wireless and

Lehman Brothers

for MediaOne -- told


that unless the owners lower the price and a potential buyer reconsiders, there is no option but an IPO.

The market showed its dissatisfaction with the outcome of the negotiations, with Cable & Wireless shares ending Wednesday down 4.1% at 799.5 pence.

Nevertheless, the banker, who wished to remain anonymous, said a flotation shouldn't prove that much of a problem to organize relatively quickly, because banks always plan for such contingencies.

"Obviously they prefer one method over another, but they're just trying to get the best price and they're not going to cut off their noses to spite their faces," he said.

He cited the example of the sale of U.K. bookmaker

William Hill

, which earlier this year was well on the road to being floated on the stock market. However, when some of the large institutional buyers began to drop out, the business was instead sold to venture capital firms



CVC Capital Partners

for $1.3 billion.

I'm Sorry, You Have the Wrong Number

On the face of it, buying One2One looks an attractive option for gaining access to the maturing U.K. cellular market. Although One2One remains the smallest of the British cellular players, its subscriber figures show it is not losing ground to its rivals.

One2One gained 20.9% of the 1,919 total new subscribers for the second quarter, taking its total market share to 15.8%.

Yet the bidders for One2One were more price sensitive than first thought. Interested parties such as




Deutsche Telekom

(DT) - Get Report

fell by the wayside as they refused to raise their bids much above the original $13 billion.

According to Goldman Sachs, not only are these telcos worried about what might happen to their share prices if the market perceives they have overpaid, but the investment bank notes that One2One's subscriber base is biased toward consumers rather than businesses. This makes One2One less strategically relevant for a European telco trying to build a pan-European presence with a focus on more stable and profitable business customers.

Two other factors add uncertainty to the valuation of One2One. The U.K.'s

Department of Trade and Industry

is set to auction five licenses for the next-generation, or UMTS, mobile phones, which offer data as well as well as voice telephony. As a result, any owner of One2One would have to invest an additional $760 million to secure one of these new licenses, and that excludes the capital expenditure needed to upgrade the infrastructure to offer such services.

Finally, there is knotty question of what the cost is of One2One's residual 250,000 subscribers who enjoy unlimited free off-peak calls. Taking into account the above, Goldman believes that the valuation of One2One is nearer $13 billion rather than the $17 billion originally sought.

With regard to any IPO, the banker said once a value for a company is found, then the price has to be pegged down some 10% below that to allow for the shares to rise in the secondary market.

However, one person's loss is another's gain. While the owners would have liked to sell One2One lock, stock and barrel, it now seems that investors will get the chance to own a part of a British mobile phone company.