UK auction comes in well under target

It was a far cry from the record £22bn the UK raised from its 3G auction in 2000, during the telecoms bubble. By contrast, the LTE auction fell short of expectations, netting £2.34bn ($3.6bn), significantly lower than the £3.5bn the government had anticipated.

A total of 250MHz of spectrum was auctioned over the past few weeks in a secret process. It was divided between the 800MHz digital dividend and the 2.6GHz band. All four cellcos acquired new frequencies as did a BT subsidiary, Niche Spectrum Ventures. Two other bidders, MLL Telecom and a unit of PCCW, failed to win spectrum.

Ed Richards, CEO of regulator Ofcom, said in a statement: "This is a positive outcome for competition in the UK, which will lead to faster and more widespread mobile broadband, and substantial benefits for consumers and businesses across the country. We are confident that the UK will be among the most competitive markets in the world for 4G services."

Telefonica O2 has the heaviest obligations attached to its licence. It acquired the 2x10MHz in the 800MHz band which was assigned a coverage mandate - to support indoor reception for at least 98% of the UK population (99% outdoors expected), and at least 95% of the population of each of the UK nations, by the end of 2017 at the latest.

Vodafone also got 2x10MHz in 800MHz, though with no obligations. These two operators were particularly keen to get spectrum in the sub-1GHz band, which is ideal for broad coverage and indoor penetration. During the long-drawn out regulatory and legal battles which led up to the auction, the other cellcos, EE and 3UK, argued that Vodafone and O2 should be limited in acquiring 800MHz frequencies, since they have sub-1GHz GSM spectrum (in 900MHz), which could be refarmed in future for LTE.

However, EE later became the focus of 'unfair disadvantage' claims when it was allowed to roll out 4G ahead of its rivals, in its own 1.8GHz GSM spectrum, a more common option for refarming than 900MHz. 3UK, which only has 2.1GHz frequencies, will be able to deploy LTE1800 too as EE is required to divest 25% of its holdings to the fourth cellco. EE gained a smaller amount of 800MHz (2x5MHz), which it will likely use to complement 1.8GHz for rural coverage, and 3UK gained the same amount, leaving it still spectrally disadvantaged compared to its rivals - it will have less 800MHz than Vodafone or O2, less 1.8GHz than EE, and did not acquire any 2.6GHz frequencies.

Nor did the Hutchison unit pursue the strategy adopted by its sister operators in Scandinavia and Italy, of boosting its spectrum coffers by snapping up the undervalued unpaired (TDD) licences in the 2.6GHz band. It was expected to have taken the same stand in the UK in order to gain low cost, data-intensive capacity, but in fact, Vodafone bought the 25MHz block in the TDD 2.6GHz band, along with 2x20MHz of FDD spectrum in the same band. The rest of the unpaired frequencies (a 20MHz block) went to the BT subsidiary, predictably enough, given that the wireline incumbent had indicated it would chase high frequency bands only, to support non-retail business models. NSV also got 2x15MHz of FDD 2.6GHz licences. O2, like 3UK, passed on 2.6GHz altogether, while EE obtained the biggest amount (2x35MHz).

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