Published on 17 Dec 2012

Can the chancellor really raise billions from the sale of 4G?

Much was made, rightly, about the seemingly odd way in which the autumn statement allowed the chancellor to book, in advance, £3.5bn of revenue from the sale of 4G mobile phone spectrum.

This treatment was helpful to the chancellor in the rhetorical game of being able to claim that the deficit was falling, even taking into account special factors.  However, it was also not the way the Treasury accounted for the 3G auctions in 2000.

The OBR told me that the European statistical treatment of these windfalls had changed, and so this way of recognising the expected revenue, as a one-off windfall, was correct.

The Treasury has also assured the OBR that the cheques for the auction will be handed over before the fiscal year-end. That seems a little bit of a stretch, but the deadline for participation passed last week, and the auction will start in January.

So how much will it raise? Well, good news comes from across the north sea. The Netherlands 4G auction raised nearly eight times expectations, at €3.8bn.

A crude application of that number, per capita, to the UK would suggest that Mr Osborne could raise £12bn. The UK’s Vodafone paid €1.4bn for its Dutch 4G license, a country with a quarter of the population.

So the £3.5bn target looks attainable. However, there are a number of reasons to remain cautious. The structure of the auction is different, both in terms of the number of frequencies offered, and the number of bidders. In Holland there was a new entrant bidding up prices. Analysts believe that is not the case here.

Also the government allowed EE to pre-launch a form of 4G earlier than everyone else. Surely that will impact the vigour if EE is bidding, and possibly the other bidders too.

Above all, the government showed at least part of its hand with the £3.5bn number, which most auction theorists would have warned against.

So in theory it is good news for the chancellor, his deficit numbers, and the Treasury coffers. Especially as both main parties have already started to spend the money. There might even be a new problem of “how to spend it”.

Unless, that is, the auction fails spectacularly to match proceeds elsewhere.

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2 reader comments

  1. Andrew Dundas says:

    When the previous government announced its 3G auction, the estimate was that £2 Billions could be raised. Because of the auction structure and bidders’ anxiety to ensure competitors did not scope up that “prize”, the eventual sum raised was £20+ billions to be paid over instalments. Those sums were booked as they were received.
    No other government sold their 3G for anything like that sum. Phone companies who “won” were strapped for cash for years after and investment in telecoms shrank in the UK.
    Perhaps UK telecom bidders will repeat their rash bidding? Probably not.

  2. Purplelinepurpleline says:

    The telco’s will do exactly as last time and pass these costs on to the end-user, so in effect what is ours anyway is sold back to s at a fat premium. Mobile users are still paying for the Gordon Brown 3G sale. Lates estimate from the city range 5.2-7.4bn.

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