4G Spectrum Auction Ends

20th February 2013

The UK auction for the new 4G spectrum has finally ended after months of delays and controversy.

Out of the 7 bidders participating in the bidding war, 5 were successful – Everything Everywhere, Vodafone, Three (Hutchison 3G), Niche Spectrum Ventures (BT) and Telefonica (owners of O2).  The two failed bidders were MLL Telecom and the HKT (UK) Company.

The spectrum ended up raking in £2.34 billion.  Whilst this may seem like a vast amount, it pales in comparison to the £22 billion made by the 3G auction 13 years ago, and in fact falls short of the forecast of £3.5 billion that the Government budgeted for in the 2012 Autumn Statement.  The auction was guaranteed to make at least £1.3 billion, as the Government chose to set this as the reserve price.

A spokesperson for The Treasury said the initial £3.5 billion prediction was based on “external expert independent analysis based on similar auctions” such as the 3G one in 2000.

However, Ofcom CEO Ed Richards has said that the auction was “never about profit maximisation” as this was not the objective it was set by the Government.  He also claimed that the shortfall of George Osborne’s forecast was down to the UK being in “very, very different times” when compared to the economic climate surrounding the 3G spectrum auction.

The breakdown of the respective bids is as follows:

  • EE (which already launched 4G in the UK last year on it’s old 2G spectrum) won two 5MHz lots of 800MHz spectrum and two 35MHz lots of 2.6GHz spectrum for £588,876,000.
  • Three won two 5 MHz lots of 800MHz spectrum for £225,000,000.
  • Niche Spectrum Ventures won two 15MHz lots of 2.6GHz spectrum and one 20Mhz lot of 2.6GHz spectrum (unpaired) for a total of £186,476,000.
  • Telefonica won two 10 MHz lots of 800MHz spectrum for £550,000,000.
  • Vodafone, despite being in dire financial straits bid the most, paying £790,761,000 (over £200 million more than anyone else) for two 10MHz lots of 800MHz spectrum, two 20MHz lots of 2.6GHz spectrum and one 25MHz lot of 2.6GHz spectrum.

Knowing that EE, Telefonica and Vodafone had significantly more financial muscle than their smaller competitors, Ofcom made sure they reserved some of the spectrum for another wholesaler.  This part of the spectrum was the part won by Three.

All winning bidders will need to pay for their lots by 23.59 on 21st February.  This money will be collected by the UK Government, who will be disappointed the auction didn’t quite reach the revenue potential they expected.

As part of each lot, the networks are obliged to roll out their services to cover 98% of the UK population indoors and even more outdoors.  This will go some way to address the issues that the UK has had with being 3G and mobile broadband being unusable in many parts of the country.  Ofcom predicts that the 4G spectrum will provide £20 billion of benefits for UK consumers over the next decade.

The next step is for Ofcom to work with winning bidders to decide where their spectrum will be located.  Once this is completed, the spectrum will then be granted to the winners.  They will then be able to roll out their 4G networks nationwide in late spring and summer 2013, drawing the long-drawn-out process to a close.

 

Robin James

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