And they’re off: the 4G auction finally begins

Alex Walls
January 23, 2013

The mobile spectrum auction has begun, with seven bidders in the running.

The auction, which will determine which mobile operators will be able to upgrade their mobile services to 4G speeds, will see 28 lots of spectrum on offer.

These will be auctioned off in two separate bands; 800 MHz and 2.6 GHz, with a total reserve price of £1.36 billion.

Services from a range of operators are expected to launch by late spring or summer this year.


Delays to the race for 4G

The bidders were announced in December and include Telefonica, Vodafone and Everything Everywhere, currently the only 4G network operator in the United Kingdom.

The auction has faced delays due to various reasons including threats of lawsuits and difficulties with the TV switch over and the United Kingdom’s lack of 4G access has been estimated to cost the economy £1 million a day.

Ofcom gave the go ahead to Everything Everywhere to launch its 4G network after deciding consumers would benefit from early access to 4G services and there was no material risk that this would be outweighed by distortion of competition.

Ofcom said today it had designed the auction to protect competition, ensuring at least four different operators would have enough spectrum to be “credible” national 4G wholesalers.


How it’s going to go

Bids would be placed online over secure connections, using specifically designed software, the independent communications regulator said.  Bidding is expected to take a number of weeks and no updates would be provided until the end of the auction, to reduce the risk of strategic bidding distorting the outcome.

The auction will be held in stages,to ensure spectrum goes to bidders who value it the most highly and would pay a competitive price, Ofcom said.

Each bidder was competing to win a combination of spectrum lots across the two bands on offer, with amounts paid varying depending on the combination of lots.  The first stage has already gone ahead, where bidders eligible to win reserved spectrum (everyone except Vodafone, Telefonica and EE) could choose whether to bid for it.

The clock stage started today, where the auction goes through a number of rounds, at the start of each of which, Ofcom announced a price for each lot, and the bidders specify what combination of lots they most wanted to win at these prices.  In the proceeding rounds, Ofcom would increase the prices for lots that have lots of demand, until demand matches supply and the stage ends.

The next stage is the supplementary bid round, where bidders could supplement their existing bids with ‘best and final offers’, to avoid any spectrum lots going unsold, such as if the last price rise for a given lot had resulted in no bids.

“Ofcom will then work out which combination of all of the bids from all of the bidders has the highest total value. This will be the winning combination of bids.”

Once the winning combo of bids has been found, Ofcom will work out how much the winning bidder would pay, using the second price rule, where each successful bidder would pay the smallest amount they would have needed to bid in order to win.

“If the second price rule was not used, the bidder who values the spectrum the most might miss out by second guessing and misjudging what their competitor was bidding – leading to an inefficient outcome where the spectrum is awarded to someone who values it less.”

Finally, the assignment stage means winning bidders bid for precise frequencies of the spectrum they want, and Ofcom would determine on the basis of the bids who is assigned which frequencies, Ofcom said.

The lots

The lots are the 800 Mhz band, part of the spectrum freed up when analogue TV was turned off and good for widespread mobile coverage, and the 2.6GHz band, ideal for delivering the capacity needed for higher speeds, Ofcom said.

The two bands make up 250 MHz of additional mobile spectrum, compared with 333 MHz in use, almost doubling the amount currently available for mobile broadband services.
“This combination of low and high frequency spectrum creates the potential for 4G mobile broadband services to be widely available across the UK, while offering capacity to cope with significant demand in urban centres.”

Ofcom chief executive Ed Richards said the auction would release the raw material needed for the next wave of mobile services.

“This will change the way we consume digital media in both our personal and working lives and deliver significant benefits to millions of consumers and businesses across the country.”

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