Telecoms analysts believe the auction of 800MHz and 2.6GHz spectrum will generate up to £4bn for the UK Exchequer, well under the £22bn raised in the 3G auction in 2000. The UK telecoms regulator Ofcom announced its decision on the rules of the 4G auction today (24 July 2012).
Simon Harris, director in PwC's Valuations team, said: ‘Following the revisions to the auction process made by Ofcom in this latest announcement, a competitive process should still be the outcome. The reserve prices implemented will generate at least £1.4bn for the Exchequer from the auction, but we expect demand for this prime real estate of the airwaves to drive prices up to £3bn - £4bn in line with our previous expectations. The desire for sub-1GHz spectrum is likely to be a key driver of competitive tension.’
Matthew Howett, Practice Leader, Regulation and Policy, at analyst Ovum, added: ‘Despite 80% more spectrum being available in this auction than during the 3G licencing of 2000, which famously raised £22.5bn, this time it’s likely to generate a mere fraction of that amount given both the use of spectrum caps (which limit how much each spectrum one operator can obtain), and a realisation from the industry that revenues aren’t there to support such large outlays.
‘However given the insatiable appetite for data from consumers in the UK, we can be quite certain that it will be a hotly contested auction with all players keen to ensure they get adequate spectrum to support further growth in demand.’
Shaun Collins at industry analysts, CCS insight, said: 'The UK continues to lag its European counterparts which threatens its technological leadership. This contrasts with the UK’s traditional leadership position when it comes to new mobile technology.After all the controversy to date, operators now must now put their concerns to one side and get on with the auction process to ensure 4G is delivered as fast as practically possible."
A total of 250MHz of spectrum is being auction, the equivalent to three quarters of the 333MHz of mobile spectrum in use today and 80% more than was on offer in the 3G auction in 2000. Ofcom CEO Ed Richards said: 'The 4G auction has been designed to deliver the maximum possible benefit to consumers and citizens across the UK.
'As a direct result of the measures Ofcom is introducting, consumers will be able to surf the web, stream videos and download email attachments on their mobile devices from almost every home in the UK.'
Ofcom has stuck to its guns and reserved valuable 800MHz spectrum for a fourth bidder, arguing that it is in the best interests of the country and consumers that there are four credible mobile wholesalers in the UK. This could be Three UK or a new entrant into the market, such as BT or Virgin.
Collins said: 'Despite continued operator unrest Ofcom should be applauded for sticking to its guns. In reality this update provides few surprises delivering a few tweaks to the process rather than a large scale re-think.Ofcom’s announcement opens the door for a new entrant to join the existing established players, particularly given the price limits on the lower frequencies which look modest compared to the price of spectrum elsewhere in Europe.'
He continued: 'This offer a unique chance for non-licensees to secure spectrum in the lucrative UK market. CCS Insight expects many companies will be carefully assessing whether to make a bid. Likely bidders could include BT (which has significantly raising its profile after having secured the rights to broadcast the UK Premier League and take-up of its broadband packages), BSkyB, TalkTalk and Virgin Media.
'Another company that can’t be ruled out is Google although we think this unlikely at this stage.Though new parties will bid it is highly likely that the established 3 network (and its parent Hutchison Whampoa) will secure a licence.
Brian Potterill, director in PwC's telecoms strategy team, said: ‘Ofcom proposes to reserve spectrum to ensure that at least four operators emerge successfully from the auction. Over the last year there has been some debate about the risks of this being considered state aid but also of the impact on prices in the auction, as the fourth bidder may not have the same appetite or capacity to pay the prices that would otherwise result from an unfettered competitive process.’
He continued: ‘Most interestingly, Ofcom has retained the proposal to reserve some of the most valuable 800MHz spectrum for the fourth bidder. This could re-enforce the scarcity of this spectrum for the three big players [Everything Everywhere, Vodafone and O2] and drive prices much higher than the reserve price. This will be the focus of bidders' strategies over the coming months.’
Ovum’s Howett said: ‘Ofcom’s priority remains having a four player market post auction. Ofcom remains of the view that a market with four players will bring the most benefit to customers and so continues to effectively reserve spectrum for Three (or a new entrant which we consider unlikely). In its first set of proposals, similar protection was also given to Everything Everywhere, but was dropped by Ofcom in its second consultation.
‘Many believed that permitting EE to launch 4G early in its existing spectrum holding at 1800MHz was the consolation prize, however this has faced its own set of problems and isn’t dealt with in this consolation – but remains something which everyone is eagerly awaiting to learn the outcome of.’
Ofcom CEO Ed Richards revealed at a briefing to journalists this morning that EE’s request to use some of its 1800MHz spectrum for 4G was a separate issue. He added that Ofcom was assessing industry views on the matter a decision would be made in ‘weeks or months, but certainly before the end of the year’.
Ofcom has also maintained its proposal for one 800MHz licensee to provide indoor coverage to 98% of the UK population (and therefore 99.5% outdoor coverage) and 95% indoor coverage for each of the UK nations.
Howett said: ‘We have also seen an increased overage obligation for one of the 800MHz licence holders which is set to bring at least 2Mbps mobile broadband to virtually all of the UK population by the end of 2017. By focusing on indoor coverage it has the added benefit of improving outdoor coverage. However consumers in some parts of the country may for a time only have the choice of the one provider, since no access obligation has been imposed on the winner of this licence.’
PwC’s Potterill added: ‘This is important, as it is the households in these last few percentage points that are proving particularly difficult and expensive to reach with the super fast broadband that is now widely being deployed in cities. This should provide a welcome boost to rural broadband, and is a pragmatic response to this important challenge.’
Collins said: 'This is bad news for rural communities who will likely feel hard done by. There appears to be no mandate for rolling out 4G in rural areas with just one licence having a minimum coverage requirement. CCS Insight believes all licences should have an obligation to roll out in smaller towns and villages in a similar manner to Germany where the regulator has used 4G as a means of closing the broadband access gap.'