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UK 4G Auction Falls Short

Ray Le Maistre
2/20/2013
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Following a relatively short process, the U.K. 4G spectrum auction is over, with all four existing mobile network operators, plus BT Group plc, securing new spectrum licenses for a total outlay of £2.34 billion (US$3.58 billion), regulator Ofcom announced early Wednesday. The outcome delivers few surprises, though the financial details raise some interesting questions. The winners are (in order of fees paid):

  • Vodafone Group plc -- £790.8 million for 2 x 10MHz in 800MHz band, 2 x 20MHz in 2.6GHz band and 1 x 25MHz in 2.6GHz band (unpaired).
  • Everything Everywhere Ltd. (EE) -- £588.9 million for 2 x 5MHz in 800MHz band and 2 x 35MHz in 2.6GHz band.
  • Telefónica UK Ltd. -- £550 million for 2 x 10MHz in 800MHz band (this is the license with coverage obligation -- see below)
  • Hutchison 3G UK Ltd. (3) -- £225 million for 2 x 5MHz in the 800MHz band.
  • Niche Spectrum Ventures (a BT subsidiary) -- £186.5 million for 2 x 15MHz in the 2.6GHz band and 1 x 20MHz in the 2.6GHz (unpaired).
"It's a good outcome for all the operators and Vodafone looks like it has done best in that it has the most spectrum and the best pick of the 800 MHz bands," says Heavy Reading Senior Analyst Gabriel Brown. "It also has enough capacity in the 2.6GHz band for the potential future expansion of its LTE services," he adds. With Telefónica UK (O2) also snapping up 2 x 10MHz in the 800MHz band, that leaves Hutchison 3G and EE sharing the remaining 800MHz band, with 2 x 5MHz each, "so they will have quite thin coverage at 800MHz, thinner than Vodafone and O2, so they won't be able to service as many users. However, both Hutchison and EE have LTE spectrum at 1800MHz, which Vodafone and O2 don't have, so it works out well for everyone," concludes Brown. But there are three losers -- namely, the two unsuccessful bidders, MLL Telecom Ltd. and HKT (UK) (a subsidiary of PCCW Ltd.), and the U.K. government's treasury. That's because the auction raised about £1 billion ($1.53 billion) less than the government had anticipated (and a fraction of the £22.5 billion raised from the 3G auction more than a decade ago, a crippling sum that cast a cloud over the British mobile services sector for years). The concern now is that the U.K. treasury will try to think of another way to extract money from the mobile sector to make up that shortfall. Hopefully that won't happen. The less the operators spend on the licenses, the more (in theory) they have available to invest, which, as Bengt Nordstrom, CEO at Swedish consultancy Northstream, notes is good news for the U.K. "The less U.K. operators are forced to pay for spectrum, the more they are able to invest in building 4G networks and developing new services," says the recently coiffed Nordstrom, who is determined to look his best for the upcoming Mobile World Congress parties. "The boost that 4G will contribute to UK GDP as a consequence will vastly outweigh the additional £1 billion they might have raised during this auction ... Treating the £2.34 billion raised during this auction as a missed opportunity for the UK treasury is extremely short-sighted," he adds in an emailed statement on the auction result. Perhaps the toughest investment task faces Telefónica UK: As Ofcom noted, the operator's license comes with an obligation to deliver "indoor reception to at least 98 percent of the UK population (expected to cover at least 99 percent when outdoors) and at least 95 percent of the population of each of the UK nations -- England, Northern Ireland, Scotland and Wales -- by the end of 2017 at the latest." As all mobile operators know, it's indoor coverage that's the toughest to deliver with any consistency and quality of service. — Ray Le Maistre, International Managing Editor, Light Reading

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2/21/2013 | 10:32:02 AM
re: UK 4G Auction Falls Short
I think there's more to this auction in terms of surprises and questions than you seem to suggest

- Although the overall auction generated less than expected, this was because they appear to have paid a lot less for the 800 but 2600 was at the higher end of comparable European auctions. It looks like BT pushed up the 2600 prices

- Why didn't O2 bid for 2600 spectrum? This seems surprising as you'd think they'd want to have some 2600 in reserve for urban capacity in the future. Maybe they'll end up doing a deal with their old mates BT

- BT's bid is particularly exciting as I doubt they'd of paid as much if they didn't have some fairly expansive plans. Wouldn't be surprised if we get some sexy converged consumer services from them

- Was 3 able to acquire the 800 spectrum under the auction rules and was that why they seem to have paid less and also why they didn't bid for 2600 spectrum?

- I wonder if 3 and EE will end up working together with their respective 800 spectrum as they do network share on 3G. Maybe 3 will sell EE the 800 spectrum as part of some 4G wholesale deal?

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