The UK 4G auction: What the industry is saying

The UK’s four mobile network operators have secured LTE spectrum, along with BT subsidiary Niche Spectrum Ventures. O2 won the coverage obligation 800MHz lot, while EE secured its first sub-1GHZ spectrum. Vodafone got its hands on 85MHz worth of spectrum, including 25MHz of unpaired 2.6GHz spectrum. And 3UK’s newly acquired 10MHz of 800MHz spectrum means the operator has more than doubled its spectrum holding over the past 12 months.

Much of the discussion following regulator Ofcom’s announcement was around the revenue generated for the public purse. Just £2.34bn was raised; Chancellor George Osborne had hoped to secure £3.5bn from the auction.

“The disappointing revenues from the 4G auction are a reflection of the challenges that mobile operators face in growing revenues from their users in the social media age,” said Victor Basta, managing director of consultancy firm Magister Advisors.

Indeed the £2.34 figure is a far cry from what the government raised from the 3G auction in 2000 – a staggering £22bn. According to Jason Yeomans, Managing Director of PMGC Technology Group, the more modest figure raised this time around reflects determination from operators not to repeat their mistakes.

“I think all of the operators felt almost hard done by after [the 3G auction],” he said. “Lessons have been learned and the economy is a very different place now; the network operators have been subject to aggressive price reductions, not just from competition but from the regulator itself.  It’s not a bottomless pit.”

But revenue is not the most important aspect of the auction and Bengt Nordstrom, CEO at consultancy firm Northstream, warned that treating the auction as a missed opportunity for the UK treasury is extremely short-sighted. He believes that the less UK operators are forced to pay for spectrum, the more they are able to invest in building 4G networks and developing new services.

“The boost that 4G will contribute to UK GDP as a consequence will vastly outweigh the additional £1bn they might have raised during this auction,” he said.

Vodafone spent the most of all four mobile operators at the auction; a statement of intent to regain standing in its home market where it is now third-ranked player, according to Kester Mann, senior analyst for operators at research firm CCS Insight. He added that EE also did well in the auction and now has a balanced 4G portfolio at 800MHz, 1800MHz and 2.6GHz and 3UK won the frequencies reserved for a fourth player, as expected.

“BT will use its 2.6GHz frequencies for fixed wireless access. It will selectively target both rural communities, where deployment would be more cost-effective that using fibre, and high-density urban areas that need extra capacity,” Mann said. “But O2 failed to secure frequencies at 2.6GHz which may mean it struggles to meet growing data needs from its customers. This may have been partly due to BT’s strong presence in the auction.”

Now that the auction is all but over, Ofcom should be praised for its decision last year to allow EE to launch LTE using its existing spectrum, accordingtoMatthew Howett, telecoms regulation analyst at Ovum.

“Despite much criticism at the time, the decision was the right one. Without it, we could very well still be arguing about how to design the auction rather than awaiting a host of additional 4G services in only a matter of months. Had it not intervened in the way it did, Britain could very well have been condemned to the slow lane for years to come,” he said.

And Dario Talmesio, principal analyst at Inform Telecoms & Media, believes that today’s announcement is proof that the UK is finally catching up with the rest of Europe.

“In fact, it is probably going to overtake most of the European countries as we will see one of the fastest 4G deployments ever, mainly driven by competition,” he said. “UK mobile operators paid much less than anticipated and every penny they saved on the auction will be gained by UK consumers in terms of better services.”

“The clear loser is the UK government, which now finds itself £1.1bn short of its rather optimistic predictions.”