Ofcom has today announced the bidders in the forthcoming 4G mobile spectrum auction – the largest ever sale of mobile airwaves in the UK, which will begin in less than a month.
Alongside the usual suspects – Everything Everywhere, O2, Vodafone and Three – there are three additional bidders for spectrum in the 800MHz and 2.6GHz bands. 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).
Bidders will be competing to acquire new capacity in the 800MHz and 2.6GHz spectrum bands. The lower frequency 800MHz band is ideal for widespread mobile coverage, while the higher frequency 2.6GHz band can deliver the capacity needed for faster speeds.
These two bands add up to 250MHz of additional mobile spectrum – equivalent to three quarters of the amount of spectrum in use today (333MHz) and 80% more than was auctioned for 3G in 2000.
The spectrum has 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.
In the first round of bidding, each company will bid on their preferred combination of lots – for example, two lots of 800MHz and four lots of 2.6GHz. As the price of each lot increases, this combination might change, based on which lots that company values most highly.
However, there is no guarantee that the different combinations will fit together, so by the end of this process there may still be unsold lots. There is therefore a supplementary bids round, which allows bidders to put forward other combinations that they would be happy to win.
Ofcom then looks at all of the bids made in both rounds and works out what combination of those bids can be fitted together so that supply equals demand, and the total amount that companies are willing to pay is maximised.
Like on eBay, each winner will pay just a little bit more than the highest losing bid. Ofcom said that this discourages bidders from second guessing what their competitors are going to bid.
In order to preserve competition in the market, Ofcom has reserved spectrum for a fourth national wholesaler, other than Everything Everywhere, O2 and Vodafone. This means that the fourth operator may end up winning lots at a lower price than other companies have bid.
The exact spectrum allocation for the fourth operator is dependent on what that company has already got. If Three is selected as the fourth operator, it will be guaranteed 2x5MHz in the 800MHz band and 2x20MHz in the 2.6GHz band, but if another bidder is selected it will receive a different combination of lots.
“What matters here is making sure there's an efficient allocation in a competitive market, not just trying to raise the most money,” said Ed Richards, chief executive of Ofcom.
“If you try and raise the most money you will be very pleased the day after but you will pay a penalty for many many years to come, and in economic terms it would be massive compared to the longer term benefits of an efficiently allocated competitive market.”
Now that the qualified bidders have been announced, they have until 4 January to withdraw if they wish. The actual bidding process will start later in January, and is expected to go on for several weeks. A full data set of all the bids made during the auction will be made available after the auction is over.
“We don't want to ever lose sight of the fact that this is not an end in itself, it's a means to an end,” said Richards.
“Ultimately it's going to mean faster mobile web browsing, speeds much closer to domestic residential broadband. We feel very comfortable saying five to seven times faster than 3G. You download a music album in three minutes on 4G compared to twenty minutes on 3G.
“It also is a very important part of the connectivity and infrastructure for business as well as ordinary users. This capacity and this sort of connectivity will have a significant impact on the kind of choices businesses make about what model of connectivity they have in the future,” he added.