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4G auction falls short of government’s projected pay day

Allan Swann
February 20, 2013

Ofcom has announced the results of the 4G spectrum auction – and it has fallen far short of the government’s estimated payoff.

The telecommunications regulator said that after 50 rounds of bidding, Everything Everywhere (owners of EE4G, Orange and T-Mobile), Hutchison (owners of Three Mobile), Niche Spectrum Ventures (a BT subsidiary), Telefonica (O2) and Vodafone have all managed to win spectrum allotments.

All of these companies now have the required radio spectrum to launch their 4G LTE networks, which will allow superfast data speeds on mobile devices. Currently only Everything Everywhere has been able to launch 4G LTE, on its existing 2G/3G spectrum, which it refarmed for the purpose.

The average UK internet connection is around 8mbps, 4G LTE starts at around 15mbps.

However, unlike the 3G spectrum auctions a decade ago, which brought an astonishing £22.5bn into the government’s coffers (and almost certainly caused the telcos crash in 2001) – expectations were more mild this time round. Most had predicted the auction to net around £3.2bn. It has instead pulled in just £2.34bn.

Other than Everything Everywhere, the major mobile operators have proven extremely timid in approaching – fearful of large capital expenditure in times of recession. Most have preferred to concentrate on monetising their existing 2G/3G infrastructure, to the detriment of the country’s economic development.

“4G coverage will extend far beyond that of existing 3G services, covering 98% of the UK population indoors ‘ and even more when outdoors ‘ which is good news for parts of the country currently underserved by mobile broadband,” said Ed Richards, Ofcom’s CEO.

“We also want consumers to be well informed about 4G, so we will be conducting research at the end of this year to show who is deploying services, in which areas and at what speeds. This will help consumers and businesses to choose their most suitable provider.”

The winners:
Ofcom's 4G Auction results

 

Ofcom auctioned A total of 250 MHz of spectrum was auctioned in two separate bands ‘ 800 MHz and 2.6 GHz. Most of this was captured when terrestrial TV was switched off, and is equivalent to two-thirds of the radio frequencies currently used by wireless devices such as tablets, smartphones and laptops.

The lower-frequency 800 MHz band has a greater geographical reach (but poorer penetration, i.e. through dense concrete walls). The higher-frequency 2.6  GHz band is ideal for faster speeds, and better penetration – but has poorer reach.

Everything Everywhere is already crowing about its results, which give it 40% market share (by spectrum owned), followed by Vodafone with 31%, O2 with 16% and Three with 13%. This is mostly meaningless number, as it matter more the quality of the infrastructure build and coverage than radio spectrum owned.

“EE is extremely pleased with the outcome of the spectrum auction. Coupled with our existing 1800MHz 4G network, it consolidates our position as the most advanced, largest and most capable 4G operator in the UK,” said EE CEO Olaf Swantee.

BT has also picked up some spectrum, which will enable it to  provide its customers with an enhanced range of mobile broadband services, building on its existing strength in wi-fi. BT has not been involved as a mobile phone network operator since it sold its assets to Telefonica in 2005.

“We are pleased to have secured this spectrum. We have said that we do not intend to build a national mobile network. Instead, this spectrum will complement our existing strategy of delivering a range of services using fixed and wireless broadband. 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,” said  Ian Livingston, BT’s CEO.

Ofcom still has to determine where in the bands each operators new spectrum will be located, which will take place shortly. Then once the network operators have paid their license fees, the real 4G battle can begin. Most of Everything Everywhere’s competitors have said they expect to start offering 4G in spring or early summer this year.

Due to the huge increase in data usage (Ofcom estimates that by 2030, demand could be as much as 80 times higher than today),  Ofcom is already planning the next auction for possible future ‘5G’ mobile services.

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