Telecoms industry relieved by ‘cheap’ 4G auction prices

Industry watchers, stakeholders and commentators have welcomed the news that Ofcom’s 4G spectrum auction brought in £1.2 billion less than what was anticipated by the government, although it is likely to be unwelcome news for the Treasury.

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Industry watchers, stakeholders and commentators have welcomed the news that Ofcom’s 4G spectrum auction brought in £1.2 billion less than what was anticipated by the government, although it is likely to be unwelcome news for the Treasury.

It was revealed today that Ofcom awarded five mobile operators – Everything Everywhere (EE), Vodafone, Three, Telefonica (O2) and BT – the winning lots of 800 MHz and 2.6 GHz spectrum, worth approximately £2.3 billion, which will allow them to roll out next generation mobile broadband services in the coming months.

Matthew Howett, telecoms regulation analyst at Ovum, said there will be ‘widespread relief’ amongst the mobile operators who have had to pay a mere fraction of the £22.5 billion they paid during the 3G licensing process, and he believes that there is no doubt that the lower than expected price tag is a positive thing.

“The costs of rolling out networks are significant. It could be argued that the relatively poor 3G coverage we have seen in the UK up until now is at least partially a result of operator’s being left out of pocket after the last auction that they had very little to actually spend on building the network. This time things should be different,” said Howett.

However, he also believes that the mobile operators could have a tough time convincing consumers to pay bumped up prices for faster 4G services.

“Despite five years of planning and tens of thousands of pages of consultations, in many ways today is just the beginning. The hard part for operators now comes in convincing us to upgrade and take out 4G mobile subscriptions once services are launched by EE’s competitors in late spring/early summer of this year,” added Howett.

EE is the only mobile operator to have launched 4G services in the UK, after Ofcom ruled that it could use its existing 1800 MHz spectrum, which had previously been used for 2G services.

“A lack of detail from EE on how many customers they have tempted over to 4G has led some to believe that consumers just aren’t willing to pay more for faster speeds,” said Howett.

Kester Mann, senior analyst at CCS, agreed that the £2.3 billion price tag will be bad news for the treasury, but good news for operators, shareholders and consumers. He said: “Today really is the beginning. Now the real hard work starts for operators – they need to rapidly deploy networks, carefully consider pricing and deploy marketing campaigns to convince consumers of the benefits of the technology.”

From a legal perspective, Patrick Clark, head of telecoms at law firm Taylor Wessing, said that he can’t see any reason why the mobile operators would decide to challenge Ofcom’s allocation of spectrum and that the value is a fair valuation, given what 4G spectrum has been sold for in other countries across Europe.

“Based on what has been disclosed so far by Ofcom it is difficult to see an obvious course for any of the existing mobile network operators to launch a challenge to the process or the results, which will hopefully mean that we will see 4G services from them by the Summer,” he said.

“The amount raised will obviously be disappointing for the government, although probably represents a more reasonable assessment of the value of this spectrum on the market. The amount realised here is broadly in the same range as other recent 4G auctions in Europe (e.g. the French auction raised £747 million, while the German equivalent raised £3.5 billion), so should not come as a huge surprise.”

However, Clark predicts that despite the drop down price, consumers can still expect to be charged somewhat of a premium for the newly rolled out 4G services.

“It is certainly good news for both the operators and their customers that we have not seen a return to the heights of the 3G auctions, although general pricing for 4G services is still likely to represent a rise based on equivalent 3G prices as operators seek to establish the premium nature of these new services and increase the size of the average revenue per user to pay for these new networks,” said Clark.

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