The results of the 4G spectrum auction in the Netherlands suggest that prices paid in the UK auction next year will be towards the high end of expectations. That’s the view of Brian Potterill, director in PwCs telecoms strategy team, following the completion of the Netherlands auction last week, which raised a total of €3.8bn.

There was more spectrum on offer in the Dutch auction than in the UK one, but even so, the analyst believes it bodes well. He said: “In the Autumn Statement, the Chancellor budgeted for proceeds of £3.5bn, which is comfortably within PwCs expected range of £2bn-£4bn. The result of the auction in the Netherlands is bound to add to confidence that the £3.5bn will be achieved.

“The high prices in the Netherlands were caused by the government setting aside some of the most valuable 800MHz spectrum for a fourth operator. This created a squeeze which drove up prices. The UK 4G auction is designed to ensure that a fourth operator can get a credible portfolio of spectrum, but doesnt specifically set aside the valuable 800MHz, so it is unlikely that we will get the same squeezed conditions from the larger operators. However, the Netherlands result adds to the sense that mobile spectrum is increasing in value as demand for smartphones grows.”

But another analyst, Matthew Howett, telecoms regulation analyst at Ovum, has described the process of trying to guess how much will be raised from the UK 4G auctions as: “something of a fools game”. He said: “How much will be paid is highly influenced by the bidding behaviour during the auction. The £2bn – £4bn range that is widely touted is based on similar auctions elsewhere in Europe. There is nothing to suggest that the UK should be any different. Its possibly the most competitive market in Europe, and all existing operators will want to make sure they walk away with spectrum to feed the almost insatiable appetite we in the UK now have for data. We were all taken by surprise when the government came out with the £3.5bn value. If they wanted to include any value, it should probably have been the reserve price Ofcom has set of £1.3bn.

Howett believes it’s also quite unlikely that a new mobile operator will emerge from the auction. “They would have to acquire a significant amount of spectrum in the auction to be a credible nationwide operator,” he said. “There was previously some spectrum reserved in the 2.6GHz band, however Ofcom dropped these proposals. There is nothing stopping a new entrant now chasing the unpaired part of the 2.6GHz band, but on its own it would not be enough spectrum to operate a nationwide network.”
Ofcom plans to announce the applicants for the UK auction before the new year. The auction will start in earnest at the end of January, with results expected in early March.