UK could see 1.8GHz auction within a month

Everything Everywhere preparing to sell 25% of its holdings in the valuable band, as a condition of its merger

The UK may be waiting longer than most for new LTE spectrum auctions, but a batch of 1.8GHz frequencies should come to market in the next month, as a result of the formation of Everything Everywhere (EE) in 2010.

EE, the UK joint venture between France Telecom and Deutsche Telekom, is about to appoint Royal Bank of Scotland to oversee the rare auction process, which could raise as much as £400m ($620m) according to sources who spoke to the Financial Times newspaper. EE’s parents submitted their joint venture plan to the European Commission at the start of 2010, rather than the UK competition authority, perhaps because they expected faster and more lenient treatment given the huge presence of both firms across the EU. The European body green-lighted the merger in March 2010 subject to EE relinquishing one-quarter of its 1.8GHz spectrum.

The resulting sale will bring some valuable spectrum to market at a time when the operators have been forced to wait until at least late 2012 for the sale of 2.6GHz and 800MHz LTE licences. These allocations have been repeatedly delayed by legal challenges over how sub-1GHz frequencies are distributed among the main cellcos. As Vodafone and O2 are the only operators already holding these low frequencies – with their 900MHz GSM licences – EE has argued that they should be restricted in how much 800MHz digital dividend spectrum they can acquire. The two cellcos retort that 800MHz will be more valuable than 900MHz because it is a more globally allocated band.

In the meantime, 1.8GHz is regarded by many operators round the world as prime spectrum for LTE as it fits between the long range characteristics of sub-1GHz, which is well suited to rural roll-out, and the high capacity of the 2.6GHz band. That should generate significant interest from EE’s rivals – Vodafone, Telefonica O2 and 3UK – as well as potential new bidders such as landline carrier British Telecom, quad play operators Sky and Virgin Media, and even potentially web giants like Google. As the FT comments: “The price in part depends on whether Everything Everywhere would be less likely to accept a higher bid from a direct rival such as Vodafone. It is also complicated by an annual charge on the spectrum.”

EE insists it will invest the proceeds into its UK network, which is undergoing several parallel upgrade processes – a refresh of the 2G system, which is also likely to be made LTE-ready; the convergence of the former Orange and TMo networks; plus future development of the 3G network operated by EE’s joint venture with 3UK, MBNL. Some observers have expressed concern that the sums raised might be taken offshore by EE’s parents, but the UK arm recently pledged to spend £1.5bn on its networks over the next few years.

The auction of the 1.8GHz licences will remove one obstacle standing in the way of the Ofcom auction, expected late this year.