4G auction: everyone's a winner, except the Treasury

20 Feb 2013
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Government earns £1 billion less than budgeted from 4G auction

Ofcom has announced the winners of the 4G spectrum auction, but the Government has lost out to the tune of £1 billion.

All four of Britain's major mobile networks - EE, O2, Vodafone and 3 - have won a slice of spectrum, with BT also securing a segment of 2.6GHz spectrum.

However, the total amount of money raised by the auction was only £2.34 billion, just over £1 billion less than the Government's budgeted forecast of £3.5 billion.

EE, Hutchison (the parent company of 3), Telefonica (O2) and Vodafone all secured spectrum in the 800MHz band, which was freed up when analogue terrestrial television was switched off last year. The 800MHz frequencies are the most desirable since mobile signals travel further and more reliably at lower frequencies, making it cheaper and more efficient for mobile operators to role out network.

The 800MHz lot won by O2 comes with a coverage obligation that requires it to provide a mobile broadband service for indoor reception to at least 98% of the UK population and at least 95% of the population of each of the UK nations – England, Northern Ireland, Scotland and Wales – by the end of 2017.

However, O2 was fined by Ofcom in 2008 for failing to meet its coverage obligation for 3G networks.

EE, Vodafone and BT won spectrum in the 2.6GHz band, which is best suited to high-density, urban areas.

Vodafone was the single highest bidder, paying £790m for slices of both bands. BT, at the other end of the scale, paid only £186m for its 2.6GHz spectrum.

BT's plans

BT says it has no intention of once again becoming a fully fledged mobile network - it spun off BT Cellnet in 2002, which later became O2. Instead, it will use the spectrum to deliver enhanced wireless broadband services.

"This spectrum will complement our existing strategy of delivering a range of services using fixed and wireless broadband," said BT chief executive Ian Livingston.

"We want our customers to enjoy the best possible connections wherever they are, and this spectrum – together with our investment in fibre broadband – will help us achieve that."

Auction success?

Ofcom chief executive Ed Richards said he was pleased with the outcome of the auction, even though it generated only two-thirds of the expected revenue for the Government. "This is a positive outcome for competition in the UK, which will lead to faster and more widespread mobile broadband, and substantial benefits for consumers and businesses across the country," he said. "We're confident that the UK will be among the most competitive markets in the world for 4G services."

Market watchers say the fact that all four networks got a slice of the pie means the 4G market will be as competitive as possible. "It means we probably won't see any premium on LTE in the long term," said Thomas Wehmeier, an analyst with Informa, referring to the premium tariffs offered by EE, currently Britain's only 4G network.

Wehmeier said the prices paid for spectrum were more realistic, after the £22.5 billion generated from the 3G auction in 2000. "All four [networks] got their fingers burned last time," he said.

The 4G winners

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