Telefonica of Spain quit the British auction of third generation mobile phone licences yesterday declaring that soaring bids had made the cost of entering the UK phone market unprofitable.

Total bids for the five licences to be operated on the universal mobile telecommunications system yesterday reached £21.1bn.

"With the UMTS licences in the UK at these price levels, Telefonica believes it would be difficult to make such an investment profitable and therefore regards other growth opportunities as more attractive and creating more value for its shareholders," the company said.

Telefonica has already won a third generation licence in its home market and may look towards Germany, which is expected to be the next to sell such spectrum.

On Friday, Telefonica pulled out of bidding for a GSM licence in Turkey.

Six companies remain in the bidding in Britain. Vodafone battled yesterday with BT over licence B, which offers the most spectrum available to an established operator.

Both companies networks are already working at capacity and require additional spectrum to expand their customer bases.

BT bid up Vodafone for licence B, but Vodafone ended up with the highest bid yesterday at £5.66bn.

TIW, which is supported by Hutchison Whampoa of Hong Kong, offered £4.38bn for licence A.

The France Telecom-backed NTL Mobile bid £3.76bn for licence C, One2One bid £3.68bn for licence D and BT bid £3.73bn for licence E.