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Summary:

The much-delayed UK spectrum auction is underway. It remains to be seen how EE’s decision to cut its premium 4G pricing yesterday, just months after launching the service, affects the outcome.

4G picture

And they’re off! Bidding has begun in a major UK spectrum auction, the result of which will be a more competitive rollout of 4G mobile broadband across the country starting around the middle of this year. So far, the only major player to begin such a deployment has been EE, which is ‘refarming’ some of its excess 2G spectrum for LTE.

The bidding will comprise several rounds, so it will be a matter of weeks before we know who bought what. During that period, the bids will be kept secret to reduce the risk of strategic bids distorting the outcome.

Obviously there’s a lot of strategic thinking going into the bidding anyway – we’re talking big bucks, although definitely not the £22.5 billion that carriers paid for 3G spectrum back in 2000. The reserve price for all the spectrum on offer here, which includes airwaves in both the 800MHz (lower bandwidth, great on distance) and 2.6GHz (way more bandwidth but more short-range) bands, is £1.3 billion ($2.06 billion), although the UK government seems to think the tally can hit £3.5 billion.

This auction was originally supposed to happen back in 2008, but legal wrangling from the operators has held it up for the best part of five years. Is that a bad thing? Not necessarily — it means the UK carriers get to learn from mistakes made in more early-adopter countries, and consumers get to join the 4G party without having to mess around with first-gen 4G handsets.

Reality check?

One late piece of news for the carriers to digest came yesterday from EE, the UK’s 4G pioneer, which has slashed its pricing for the high-speed mobile broadband service just three months after launching it.

It’s really hard to figure out for sure at this stage what the reason was for that price cut, but the likelihood is that EE simply priced it too high for what it was offering. Remember that, unlike U.S. carriers, EE has been trying to charge more for 4G data than it does for 3G data.

For example, the lowest price point for 4G was £36 – now £31 – per month, and for that EE is only providing 500MB of data, just as it does for the equivalent 3G package, which is £5 cheaper each month. As LTE is faster, people might reasonably consume more data using it, so this is a pretty paltry limit.

And then, of course, the UK is also still in very shaky economic territory, with a triple-dip recession being a distinct possibility. The UK’s HSPA networks are pretty solid and austerity has really taken hold over the last year, so it may be that people are less willing to pay a premium price for a service that doesn’t offer a large perceived improvement.

But let’s see. The economy will hopefully be in a different place in a few years’ time, and the decisions taken in the coming weeks will be fundamental to the operators’ positioning down the line.

Who’s in?

The auction process itself is terrifically complex, due to the fact that bidders will be shooting for combined packages of spectrum. If you want to study the ‘combinatorial clock’ process, the regulator Ofcom has provided a pretty good rundown here.

One of the most important rules to remember, though, is that Ofcom has mandated that at least four players must emerge from the auction with enough spectrum to act as a 4G wholesaler to smaller mobile virtual network operators (MVNOs). This is intended to maintain competition in one of the most price-sensitive mobile markets out there.

It’s also worth noting that the bidder include not only the carriers you’d expect to see – EE, Telefonica (O2), Vodafone and Three – but also smaller business-focused players such as MLL Telecom and PCCW subsidiary HKT, as well as BT.

Many will have forgotten the fact, but BT used to be a mobile player in the UK – O2 originated as BT Cellnet. However, it’s unlikely that the telecoms giant wants to get back into that space as such. BT probably wants 4G spectrum to complement its fixed-line offerings in the corporate and B2B market.

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  1. You’re right the auction process is stupendously complicated but in terms of what any normal reader would potentially find interesting, it’s really very simple. There are only 3 blocks of really desirable spectrum and four buyers, so it’s really about which 3 of the 4 main players get a block & how much they pay for it

    My guess is EE, O2 & Vod get 2x10MHz each with the smallest operator 3 missing out but keeping in the auction long enough to ensure the maximum pain for the others

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