UK 4G Auction raises £1bn less than expected: winners revealed

20/02/2013

Ofcom has raised £2.34bn in its UK 4G auction, providing widespread access to superfast mobile internet across many parts of the country. However, this amount was around £1bn less than it was hoping for.

The telecoms regulator announced that the winning bidders are Everything Everywhere; Hutchison 3G UK; Niche Spectrum Ventures, a BT subsidiary; Telefonica (O2); and Vodafone.
Vodafone bid £791m, the most of all the bidders, for fives chunks of spectrum.

Mobile operator EE, the T-Mobile and Orange joint venture, was the first to launch a 4G service in late 2012, but has struggled to attract users, leading it to cut its prices in January.

The Office for Budget Responsibility (OBR) had forecast that the auction would raise £3.5bn for the Treasury.

4G mobile broadband should provide smartphone and tablet computer users with superfast download speeds.

Ofcom claims that 4G will provide £20bn of benefits for UK consumers over the next 10 years.
The regulator auctioned the spectrum in two bands, 800MHz and 2.6GHz, equivalent to two-thirds of the radio frequencies currently used by tablet computers, smartphones and laptops.

The large spectrum range will let 4G networks get widespread coverage as well as offering capacity to cope with significant demand in urban centres.

The auction netted far less than the £22bn raised from the 3G auction in 2000.

Responding to the announcement, a Treasury spokesperson said: "The £3.5bn number at Autumn Statement 2012 was certified by the independent OBR and based on external expert independent analysis based on similar auctions, including the last 3G one.
"The final auction revenue will be accounted for at Budget in the usual way."
But Chris Leslie, the shadow chief secretary to the Treasury, said: "It's extremely worrying that the Chancellor's entire budgetary strategy seems to be based on numbers that were significantly over-estimated."


Analysis

Commenting on the auction falling short of forecasts, Matthew Howett, telecoms regulation analyst, at Ovum said: "Despite all the noise being made about the UK’s 4G auction, what you can’t hear is the sound of champagne corks popping over at the Treasury as Ofcom’s 4G auction fails to raise George Osborne’s optimistic expectation of £3.5bn coming in at £2.34bn.

“For the mobile operators there must be widespread relief that the amount paid is a mere fraction of the £22.5bn they were asked to cough up during the 3G licencing process. For them, the fact they didn’t have to pay billions more is without doubt a positive thing. The costs of rolling out a network are significant. It could be argued that the relatively poor 3G coverage we have seen in the UK up until now is at least partially a result of operator’s being left out of pocket after the last auction that they had very little to actually spend on building the network. Things this time should be different, especially given the ability for the 800MHz airwaves to cover large distances and penetrate buildings well.

"Three’s ability to win valuable 800MHz spectrum coupled with the spectrum at 1800MHz it acquired from EE before the auction puts it in a strong position to roll out its 4G network. Many customers on Three will have had problems at one point with reception inherent of the propagation characteristics of the 2.1GHz spectrum it currently uses. Other key highlights include the commitment BT has made to rolling out its own 4G services, and O2’s lack of higher value spectrum which is needed to meet growing data demands.

"Much has been made of the UK’s late start in the 4G race. In our view, everyone deserves at least some of the blame, from the regulator, through to the government and the operators themselves. However Ofcom should be praised for allowing EE to launch using its existing spectrum. 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.

"Despite five years of planning and tens of thousands of pages of consultations, in many ways today is just the beginning. The hard part for operators now comes in convincing us to upgrade and take out 4G mobile subscriptions once services are launched by EE’s competitors in late spring/early summer of this year. A lack of detail from EE on how many customers they have tempted over to 4G has led some to believe that consumers just aren’t willing to pay more for faster speeds."

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