New bidders in 4G auction to boost government’s coffers

Alex Walls
January 16, 2013

The upcoming 4G spectrum auction will see fierce bidding but the amount raised will fall far short of that raised for the 3G auction in 2000, a senior analyst has said.

The 4G spectrum auction, which will determine which mobile operators will be able to upgrade their mobile services to 4G speeds, is due to start this month. In December, seven bidders were announced, including Everything Everywhere. EE  is currently the only operator running a 4G network. It launched in October after Ofcom cleared it to use its existing radio spectrum. This ‘spare’ spectrum was gained from the merger of Orange (France Telecom’s mobile division) and T-Mobile (Deutsche Telekom’s division).

The Government expects to make £2 billion to £3 billion from the auction and CCS Insight Operators senior analyst Kester Mann said the presence of new players in the bidding process, including Niche Spectrum Ventures (a subsidiary of BT), HKT Company (a subsidiary of PCCW) and MLL Telecom, was likely to drive the amount raised higher. Even so, the total amount paid for the spectrum would remain “far short” of that paid for the 3G auction in 2000, an astonishing £22.5 billion.

Many analysts believed this led to the telco crash in 2001, when companies burdened by debt could not afford to build the networks.

Mr Mann said the recent spectrum auction in the Netherlands raised three times more than expected, at ‚¬3.8 billion (£3.2 billion), which could be worrying for the UK operators under revenue pressure and the three “new players” could put pressure on 3, which he said was understood to have been earmarked as the likely fourth operator to gain spectrum in the ‘ideal’ mobile coverage band.

“Should 3 fail to acquire frequencies at 800MHz, its long term prospects in the UK market would be severely dented.”

Mr Mann said EE would have gained a head start of at least six months by the time the auction results are announced and the winners can roll out their 4G services.  However he said EE had failed to focus on new services instead of just speed, which could allow the UK’s other operators to close the gap.  Its entry tariff offered too little data at 500 MB, he said, which meant a “delicate conversation at point of sale” to upgrade customers who were paying the same amount for unlimited data on the Full Monty plan with T-Mobile.

“We believe EE needs to more strongly articulate services such as Clone Phone, EE Film or the free access to BT Wi-Fi offered within its tariffs.”

LTE roll out would be faster than any new network yet seen, he said, and coverage and capacity would be a “fierce battleground” for operators in 2013 and key to how consumers first viewed the technology.  He said more aggressive pricing policies could be expected with the launch of commercial services likely in May or June in the bid to sign up 4G customers.

Ofcom has said the typical 4G user will see download speeds at least five to seven times those seen on existing 3G networks, based on 3G speeds of 1Mbit/s on average and 4G being 6Mbit/s on average.  Mr Mann said the UK still lages behind leading 4G markets such as South Korea, USA and Japan and that by the time EE had competition, South Korea was likely to have clost to 40% of its mobile customers already using 4G networks.

Some background to the UK’s 4G wrangles

As it stands, the UK still has just the single operator, EE, running an effective monopoly. Ofcom concluded that consumers would benefit significantly from early access to such services and that there was no material risk that these benefits would be outweighed by distortion of competition. The spectrum auction which was meant to have occurred roughly four years ago, including threats of lawsuits and difficulties with the TV switch over.  Labour’s Shadow Secretary for Media Helen Goodman said in 2012 that it was estimated the UK’s lack of 4G cost the economy £1 million a day.

The spectrum is being sold in two separate bands, 800 MHz and 2.6 GHz, the former of which was part of the spectrum freed up when analogue terrestrial TV was switched off and was “ideal” for widespread mobile coverage, Ofcom said. The higher frequency band is ideal for delivering the capacity needed for faster speeds and the two bands add up to 250 MHz of additional mobile spectrum on offer, meaning a 75% boost to the amount of mobile spectrum available, the independent regulator said.  The bands would be packaged as smaller lots for the auction, Ofcom said, and the auction was designed to achieve the outcome of its competition assessment of the UK mobile market, published in July, which concluded UK consumers were likely to benefit from better services at lower prices if there were at least four credible national wholesalers of mobile services.



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