Reacting to the 4G Auction

The UK Treasurys auction of 4G mobile spectrum has finally concluded, after nearly two years of build-up. The auction has, as many have pointed out, raised significantly less than expected, at £2.34bn, an amount which looks especially paltry when compared to the £22.5bn raised by the 3G auction back in 2000.

According to Victor Basta, managing director of Magister Advisors, this amount reflects the position mobile operators find themselves in today, which is quite different to where they were over a decade ago.

“The disappointing revenues from the 4G auction, well below Government forecasts, are a reflection of the challenges that mobile operators face in growing revenues from their users in the social media age,” says Basta. “Data-heavy social media services are causing huge growth in data traffic across mobile networks.”

“Mobile operators increasingly find themselves in a role that is about supporting end users’ social networking habits, with little, if any, commercial benefit. Social networking has effectively turning mobile network operators into digital drug mules.”

But Brian Potterill, director in PwCs telecoms strategy team, believes that the lower prices operators paid could actually be beneficial for the customer.

“The UK has one of the most competitive mobile markets in the world and these auction prices reflect the impact of that competition on operators ability to make profits,” says Potterill. “Ofcom took the view before the auction that at least four successful bidders were needed to ensure competition in 4G services as well, and has set a minimum coverage requirement of 98 per cent of the population for one of the licenses to ensure services are widely available.”

“Although some observers may be disappointed that the auction did not raise more for the Treasury, their loss is the consumers gain as we can look forward to lower prices and wide-spread coverage.”

On the flipside, its worth looking at the results for individual operators – as CCS Insight senior analyst Kester Mann points out, the outcomes and prices paid werent equal.

“At £791 million Vodafone spent the most which is a statement of intent to re-gain standing in its home market where it is now third-ranked player,” says Mann. “EE will be pleased to acquire its first frequencies below 1GHz and now has a balanced 4G portfolio at 800MHz, 1800MHz and 2.6GHz.

“O2 failed to secure frequencies at 2.6GHz which may mean it struggles to meet growing data needs from its customers. This may have been partly due to BT’s strong presence in the auction. O2 has acquired the licence that mandates a minimum coverage requirement which could lead to a more expensive network deployment in the long term.

“Finally, as expected, 3 won the frequencies reserved for a fourth player which fulfil Ofcom’s ambition to achieve a level-playing field for 4G services.”

While EE has expanded its range of 4G spectrum, today does mark the end of its period of exclusivity, as it will no longer be the only UK operator to offer 4G services – although, as yesterdays figures showed, this doesnt seem to have given it much of an edge in terms of gaining subscribers.

“EE is extremely pleased with the outcome of the spectrum auction. Coupled with our existing 1800MHz 4G network, it consolidates our position as the most advanced, largest and most capable 4G operator in the UK,” said EE chief executive Olaf Swantee. “The acquisition of low and high frequency spectrum allows us to boost our superfast data services and coverage – indoors and outdoors, in cities and the countryside.

“This result means that we are perfectly placed to meet future data capacity demands – further enhancing the superfast 4G services we already offer the UK’s consumers and businesses.”