The UK, once a leader in mobile communications, is now lagging behind in the implementation of 4G technology. Whilst other economies already have commercial networks up and running, the UK has only today announced details of its next generation wireless spectrum auction, with a tentative launch date for consumers of late 2013.
Yes, late 2013. But we always knew that, there was never much chance of bringing that forward – not without a major upheaval and rethink at Ofcom, and the civil service just doesn’t work like that. So late 2013 it is then – hopefully. As to how we get there, here’s Ofcom’s plan:
“Ofcom expects the auction process to start before the end of this year, with prospective bidders required formally to apply to take part. Those applications will then be assessed by Ofcom before the bidding phase starts, likely to be in early 2013. Mobile operators are expected to start rolling out 4G networks using the auctioned spectrum from the middle of 2013, and to start offering 4G services to consumers later that year.”
Matthew Howett, Practice Leader for Regulation and Policy at Ovum, says that the build-out window from auction to commercial service could still be at risk:
“The timetable has always been highly ambitious and has attempted to achieve in a matter of months what took years for 3G. Things could of course still be delayed further if any operator launches a legal challenge – which can now be prepared as we approach the auction.”
Alongside today’s statement, Ofcom has published a draft of the legal document containing the auction rules. This is subject to a statutory consultation closing on 11 September 2012.
Ofcom says the auction will offer the equivalent of three quarters of the mobile spectrum in use today – some 80 per cent more than released in the 3G auction which took place in 2000. It hopes to see mobile broadband rolled out to “at least 98 per cent of people in villages, towns and cities across the UK” – in other words, 98 per cent of the population excluding those living in isolated areas, not 98 per cent of the geographical landmass.
Given that there are effectively four UK operators offering 3G service today (O2, Vodafone, Everything Everywhere and 3), there has been considerable interest in how the regulator would ensure effective 4G competition. It has decided to reserve some of the available spectrum for a fourth national wholesaler, “other than the three largest mobile operators”.
Is Ofcom protecting the position of the smallest operator, 3. Or is this a vote of no confidence in its ability to compete in the next phase of mobile in the UK? Ofcom says:
“UK consumers are likely to benefit from better services at lower prices if there are at least four credible national wholesalers of 4G mobile services. Therefore, in the interests of competition, Ofcom has decided to reserve a minimum amount of spectrum in the auction for a fourth operator. This could be either Hutchison 3G or a new entrant altogether.”
Ofcom says there is a material risk that neither Hutchison 3G nor a new entrant would acquire the minimum amount of spectrum in the auction to compete effectively in service delivery, but; “we do not have the same level of concern in regard to Everything Everywhere, Telefonica or Vodafone.”
In November 2011, Everything Everywhere submitted a (cheeky? Certainly controversial) application to Ofcom to use its existing spectrum to deliver 4G services ahead of the auction process.
A final decision on this will be published by Ofcom “in due course” and is independent of today’s announcement.
The auction will offer at least two spectrum bands – 800MHz and 2.6GHz. There are also plans for 1800MHz. The 800MHz band is part of the so-called ‘digital dividend’, obtained from refarming spectrum, which is generally considered good for widespread mobile coverage. The 2.6GHz band is better suited for denser, high capacity areas.
One of the two 800MHz ‘lots’ of spectrum (the larger of the two) will carry an obligation to provide a mobile broadband service – at least 2Mbit/s – for indoor reception to at least 98 per cent of the UK population by the end of 2017 at the latest. Ofcom’s reasoning is that by imposing the obligation on one operator, it will drive other operators to extend their own coverage in response. We’ll see.
There are seven proposed spectrum lots:
A(i): 800MHz, 2 x 5MHz
A(ii): 800MHz, 2 x 10MHz with coverage obligation (detailed above)
B: 1800MHz, 2 x 15MHz
C: 2.6GHz, 2 x 5MHz standard power
D(i): 2.6GHz, 2 x 10MHz shared low power
D(ii): 2.6GHz, 2 x 20MHz shared low power
E: 2.6GHz, 5MHz unpaired
Good luck to the operator auction teams and games theorists in working out the best combination of that lot!
Of course, the 4G auction will inevitably be compared with the 3G auction of 2000, when companies went wild with their cheque books to secure a licence. As a consequence, the UK Treasury netted £22.5 billion – which was soon fritted away (or spent wisely, depending on your political leanings) by the government of the day.
In this time of austerity (more on that later), the 4G auctions are highly unlikely to generate such a vast sum of money. In fact, Ofcom has proposed a total reserve price on all 7 lots of spectrum that appears to add up to £805.1 million (NB: in a response to TelecomTV, it says the total is in fact £1.4bn. We are seeking further clarification). It based its prices on the evidence of amounts paid in auctions in other countries for the same or similar spectrum.
Simon Harris, Director of consultants PwC’s valuations team, said that the reserve price will likely be exceeded:
“We expect demand for this prime real estate of the airwaves to drive prices up to £3bn or £4bn, in line with our previous expectations. The desire for sub 1GHz spectrum is likely to be a key driver of competitive tension.”
In a short statement, Ed Richards, CEO of Ofcom, 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 introducing, consumers will be able to surf the web, stream videos and download email attachments on their mobile device from almost every home in the UK.”
In addition to the question “how long does it take to organise a wireless spectrum auction?” we now have a new one: “How many words need to be written prior to a wireless spectrum auction?” The answer to the original question of course is “too long”, whilst it would appear that the answer to the second is “too many to count” – there are a staggering 13 original documents available for download today from Ofcom’s website, not including executive summaries and Welsh language versions.
We have to come back to the subject of economic austerity. Just how much money is being spent on this process? And more to the point, how much increased economic activity is being lost by having such a long and drawn out process? Are UK businesses suffering by not having access to LTE, given that many of their competitors abroad do?
Of course the counter argument is that a late start to LTE gives the current operators time to sort their network sharing arrangements so they can possibly deploy 4G at a lower cost? And just what is the investment case in a mature mobile market like the UK?
There’s a lot of thinking still to do before the UK gets to sample the delights of LTE.
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