Published on 20 Feb 2013 Sections

4G auction raises £1.2bn less than Treasury predicted

Consumers can look forward to faster mobile broadband and more competitive services following the 4G auction, but the Treasury will receive £1.2bn less than it predicted last year.

Ofcom has named the winning bidders in the 3G auction as O2 parent Telefonica, Hutchison 3G, Vodafone, EE, the companies behind the UK’s main broadband networks, along with a subsidiary of BT.

Together the bids have raised £2.3bn in total for the government, some £1.2bn less than the £3.5bn receipts that chancellor George Osborne had forecast in his autumn statement.

No repeat of 3G bidding frenzy

The last big auction of the airwaves saw the government rake in £22.5bn during a bidding frenzy by mobile phone operators at the height of the dotcom boom.

The 3G licence sale in 2000 generated a huge boost for the Treasury’s coffers, but the outcome for consumers was much less positive as operators then struggled to also meet the significant cost of building their faster 3G networks.

Matthew Howett, telecoms regulation analyst at Ovum, believes the relatively poor 3G coverage seen in the UK up until now was at least partially the result of operators being left out of pocket after the last auction.

He said today: “For the mobile operators there must be widespread relief that the amount paid is a mere fraction of the £22.5bn they were asked to cough up during the 3G licensing process.

“For them, the fact they didn’t have to pay billions more is without doubt a positive thing.”

He is hopeful that things should be different this time, especially given the ability for the 800MHz airwaves to cover large distances and penetrate buildings well.

But the outcome of the 4G auction is bad news for Mr Osborne who had earmarked the forecasted £3.5bn receipts for spending in his autumn statement. In response the Shadow Chief Secretary to the Treasury Rachel Reeves described Mr Osborne as “foolish and short-termist”, for including the projected proceeds from the auction in government accounts before it had happened.

The government has been hoping the auction of 4G mobile airwaves will provide a boost for the beleaguered UK economy, particularly after auctions in other countries proved to be the source of a much-needed windfall after successful sales.

Mobile operators in the Netherlands paid a total £3.1bn for the country’s 4G spectrum in December, easily surpassing expectations of around £366m. In Ireland during the previous month, the process generated £700m, despite a challenging economy.

Faster connections

For the typical user, download speeds of initial 4G networks will be at least five to seven times faster than those for existing 3G networks.

This means a music album that takes 20 minutes to download on a 3G phone will take just over three minutes on 4G.

But whether customers have the appetite and deep enough pockets to pay for the higher speeds remains to be seen.

The largest ever sale of mobile airwaves in the UK, which began last month, is expected to herald better, faster and more reliable mobile broadband connections for consumers across the UK.

Bidders competed to buy airwaves in two separate bands – higher frequency 2.6 GHz and lower frequency 800 MHz – with around 28 lots of spectrum available.

After more than 50 rounds of the auction, Vodafone was the highest bidder, paying £790.8m for a mixture of the lower and higher bands.

EE was the second highest bidder, paying £588.9m.

O2’s Telefonica won a spectrum which must provide mobile broadband services for indoor reception to a least 98 per cent of the UK population, and at least 95 per cent of the population in each of the UK nations – England, Northern Ireland, Scotland and Wales – by the end of 2017 at the latest.

EE, formed from the merger of Orange and T-Mobile, already has access to 4G and was the first to offer a superfast network in the UK.