Ofcom’s 4G Auction Will Be Worth The Long, Long Wait

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Peter Judge

It may be late, but the timing is still good for the 4G auction, says Peter Judge. And the government won’t say no to a couple of billion

The so-called 4G auction is very late. It’s about five years since the date when it was originally supposed to happen. In that time, Britain’s mobile broadband networks have been creaking under the strain of providing the nation’s mobile data.

We now need  mobile data capacity pretty desperately. And Ofcom has finally published the proposals for Britain’s biggest ever auction of radio spectrum licences (read the details here), designed to ensure that this capacity finally gets unlocked.

And if the need from users wasn’t enough to make sure the 4G auction finally happens, there is another factor. A swift auction would bring in at least £1.4 billion, if we add up the reserve prices on all the spectrum that is up for sale. The government isn’t going to turn that down. If at all possible it will want to rake it in before the next election.

A legal quagmire

The process has dragged on because the plans were mired in legal argument and entangled in other spectrum deals.

The spectrum potentially included in the sale includes some at below 800MHz, where waves penetrate buildings easily and coverage is great,  and some at 2.6GHz, where penetration is not so good, but  bandwidth could be high.

There was also the question of whether 1800MHz spectrum owned by Everything Everywhere would be included –  the operator has to sell a quarter of its 1800MHz specrtrum as a condition of its creation, in the merger of  T-Mobile and Orange. That has caused some legal complications.

Then there is the fact that some of the 800MHz spectrum still carries  analogue terrestrial TV in some regions. It should be cleared by late 2013, which is when Ofcom hopes to see the first 4G services.

Keeping Three happy?

The biggest complication, however, arose from Ofcom’s insistence that Britain needs four mobile operators to maintain a competitive market. Three has no spectrum around 1800MHz, the classic 3G region, and only has 2.1Ghz spectrum. It  warned it would be doomed if it failed to get any low-frequency, good-coverage spectrum.

Accordingly, Ofcom has guaranteed that Three – or some other new entrant – will get enough spectrum to run a national service. The amount guaranteed in the final proposal is less than Three might have hoped for. The minimum amount might be two 15MHz chunks in the 800MHz region, and other options trade off some of that for some 1800MHz spectrum, some 2.6GHz spectrum, or swap it entirely for a combination of the two.

Ofcom says that any of these “portfolios” of spectrum would likely “be sufficient for a fourth national wholesaler to be capable of being a credible competitor”.

Three does still have a worry of course – what if a complete outsider, like Virgin, decides to jump into the market? We’ll watch for that possibility with interest.

As an aside, it’s worth bidding a wistful farewell to the idea, which had been floated, of offering some 2.6GHz spectrum for low-power LTE networks, which companies could run on their premises, much like Wi-Fi hotspots or 3G femtocells. Ofcom dumped the idea when not enough people supported it.

Will it blend?

Will the proposals work and will we get 4G services in the timescales Ofcom hopes for?

At this stage, a concerted legal challenge could still bring the process down and – like the seasoned poker players they are – operators Vodafone, O2 and Everything Everywhere are all playing their cards close to their chest.

Everything Everywhere said there were “still some elements of today’s proposal which we don’t think are in the interests of competition or consumers”, and the others said they were still reading through the proposals.

Some fear there may be more legal action to come: “After a number of delays it is vital that this auction does not get further derailed by threats of litigation,”  said Stephen Hearnden, director of telecommunications at industry group Intellect.

However, a serious spanner in the works is very unlikely, given that the proposals differ very little from what was put out for consultation a year ago .

It is also unlikely that we will see the fevered over-bidding that pushed the 3G auction in 2000 up to £22.5billion. This time round there is a recession on,  and operators involved last time around will remember they were nearly crippled by the licences they overpaid for.

So we can be pretty sure the end result will be a sensible multiple of the reserve price. If it went to £3 billion, then  the total value would be around £50 per head of population, which feels about right.

Our industry can look jealously at other countries: the USA, Germany, Sweden and parts of Asia already have 4G services.  But our operators should be able to roll out networks comfortably – the LTE equipment is cheaper and more mature than it was five years ago, and there will be a ready user base with smartphones and tablets that want to use the data.

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