The government's third generation mobile phone auction reached another milestone yesterday as the total bids topped £16bn, driven byVodafone and BT Cellnet's battle to win the prized licence B.

Licence B - one of five on offer - offers the broadest spectrum available to the four existing mobile operators.

Yesterday Vodafone bid £4.24bn for the licence, which pushed its shares down 17.25p to 338.25p as investors became concerned about the cost to the company.

In addition to the payment for the licence, the five winners will need to spend at least £2bn each building networks for the Universal Mobile Telecommunications System on which third generation phones will operate.

Stephen Pentland, a partner at Spectrum Strategy Consultants, said that the winners might open up their networks to new retailers offering mobile services as part of a bundled package to their customers.

He said this could be vital because the winners would need to generate revenues quickly to cover the potential £6bn-plus cost of the licence and network to operators such as Vodafone or BT.

"Just as credit cards are no longer marketed just by retail banks - even Yahoo! now offers a credit card to its portal users - so too it is possible that mobile communications services will no longer be the exclusive domain of telecoms operators," he said.

The second highest bid came from NTL Mobile, backed by France Telecom, which offered £3.25bn for licence A. This licence, which is reserved for a new entrant, has become a battleground for Telefonica of Spain, TIW of Canada and WorldCom of the Netherlands.

Telefonica, which has waived its bidding rights twice and has only one more chance to abstain before it has to drop out of the race, offered £2.84bn for licence D.

One2One bid £2.85bn for licence C while Orange offered £2.86bn for licence E.

Round 111 of the auction resumes today, with eight bidders still in contention. The number of contenders is expected to drop before the end of the week as prices rise further.

Some analysts have said the total value of the bids may go as high as £22bn.