The long-awaited auction of 4G licenses has finally begun, with seven bidders competing to acquire new capacity in the 800MHz and 2.6GHz spectrum bands.
Alongside the usual suspects – EE, O2, Vodafone and Three – there are three additional bidders. These are HKT UK (a subsidiary of Chinese holding company PCCW, which owns UK Broadband), MLL Telecom, and Niche Spectrum Ventures (a subsidiary of BT).
The new spectrum will almost double the amount of airwaves currently available for mobile broadband services on smartphones, tablets and laptops, according to Ofcom.
As revealed in December, the licenses have been packaged into 28 lots across three different types of spectrum.
In the 800MHz band there are five lots in total. Four of those are for 5MHz paired spectrum (2x5MHz) and one is for 10MHz paired spectrum (2x10MHz). The 10MHz lot comes with an obligation to provide at least 98% indoor coverage throughout the UK by the end of 2017.
In the 2.6GHz band there are 14 lots of 5MHz paired spectrum (2x5MHz) as well as nine lots of 5MHz unpaired spectrum. There is also an additional 10 lots in the 2.6GHz band that can be bid for on a low power concurrent basis, meaning that bidders can share the spectrum with other low power users.
Although each lot has a reserve price, most bidders are interested in combinations of lots, and the amount that bidders are willing to pay for each individual lot will vary depending on what it is combined with.
Bids are being placed online over secure connections, using software that has been developed specifically for the auction. The bidding will continue over several rounds and is expected to take a number of weeks until the final winners are known.
No updates on bidding activity will be provided until the conclusion of the auction. Due to the nature of the auction, this information must remain confidential until the auction concludes to reduce any potential risk of strategic bidding which could distort the outcome.
Once fees are paid, licences will be granted, enabling operators to start rolling out new networks. It is expected that services will be launched by a range of providers from late spring 2013.
“We expect to see some intensive bidding over the next few weeks as the networks scramble to secure vital capacity to launch 4G services,” said Kester Mann, senior analyst at CCS Insight.
“In particular, the sale of spectrum in the 800 MHz band suitable for wide-area coverage will be hotly disputed. But the process won't be straightforward – the blind bids used in the auction mean there are more than 3,000 potential outcomes.”
Mann added: “EE will have enjoyed a six- to eight-month head-start by the time its rivals launch 4G services, probably in May or June. However, its failure to focus on innovative services rather than simply speed could allow new players to quickly close the gap.”
EE announced yesterday that it is cutting the price of its basic 4G service – which includes unlimited UK calls and texts and 500MB of mobile data – from £36 to £31 a month for a 24-month contract. This has widely been interpreted as a response to consumer pressure.
According to recent research carried out by YouGov on behalf of Virgin Media Business, cost remains the main reason that consumers change their mobile phone provider, with only 10 percent citing the speed benefits of 4G as a reason to switch.
Commenting on the auction, Anukool Lakhina, Founder and CEO of Big Data analytics company Guavus said that operators need to think about the real-world value of the contracts they are pitching for.
“It's easy to get carried away with the possibilities that 4G can open up; but operators need to look at the actual returns that they can expect to generate,” he said, adding that many operators ended up overpaying for 3G licenses.
The 4G auction was originally supposed to take place in 2008, but a legal challenge by T-Mobile and O2 delayed the process. The auction has since been repeatedly set back, as Ofcom has tried to devise a strategy for distributing spectrum without giving any network operator an unfair advantage.
Last year Labour's shadow minister for media, Helen Goodman, has slammed the government's handling of the 4G spectrum auction, claiming that repeated delays were costing the taxpayer hundreds of millions of pounds in lost revenue each year.