The United Kingdom moved one step closer to broad “4G” deployments, with government regulator Ofcom announcing the winning bids for spectrum licenses in the 800 MHz and 2.6 GHz band. Those bids generated $3.5 billion in revenue for government coffers, which was well below the $5.3 billion expected to be raised.
The latest auction also fell well short of the $35 billion bid by carriers in 2000 for 3G licenses that led to similarly outrageous bidding – and controversy – across other European nations.
“For them, the fact they didn’t have to pay billions more is without doubt a positive thing,” noted Matthew Howett, telecom regulation analyst at Ovum. “The costs of rolling out a network are significant. It could be argued that the relatively poor 3G coverage we have seen in the [United Kingdom] up until now is at least partially a result of operator’s being left out of pocket after the last auction that they had very little to actually spend on building the network. Things this time should be different, especially given the ability for the 800 MHz airwaves to cover large distances and penetrate buildings well.”
Bidders Everything Everywhere; Hutchison 3G UK; BT Group’s Niche Spectrum Ventures; Telefónica UK; and Vodafone Group all picked up some of the 250 megahertz of spectrum licenses up for grabs. MLL Telecom and HKT (UK) Co. were shut out of the bidding.
Vodafone was the auction’s biggest spender, throwing down $1.2 billion for 20 megahertz of spectrum in the 800 MHz band, 40 megahertz in the 2.6 GHz band and 25 megahertz of unpaired spectrum in the 2.6 GHz band. Analysts noted the big spending by Vodafone showed an aggressive intent by the world’s second largest wireless operator, though it only ranks No. 3 in its home market.
“Just four years ago, in 2009, Vodafone had a lock on the second-place ranking in the U.K. wireless market, slightly behind leader O2,” said Daniel Gleeson, mobile media analyst at IHS, in a research note. “However, the merger of Orange and T-Mobile into Everything Everywhere relegated Vodafone to third place, several million subscriptions behind the top market player. By leading the way in spectrum spending, Vodafone has made a statement it intends to reclaim its former position in the market.”
Gleeson added that the depth of spectrum acquired by Vodafone also seemed to indicate the carrier was not planning on shifting current 2G and 3G spectrum to serve its new “4G” needs, a move that has already been instituted by its larger rival Everything Everywhere for its LTE network. Ofcom announced earlier this year that it was looking at allowing carriers to use alternative spectrum bands to serve new deployments.
Vodafone has received $8 billion in dividend payments over the past 18 months from its 45% stake in domestic operator Verizon Wireless, which has been generating between $10 billion and $12 billion in annual free cash flow
Everything Everywhere, a joint venture between Deutsche Telekom and France Telecom, spent $896 million for 10 megahertz of spectrum in the 800 MHz band and 70 megahertz of spectrum in the 2.6 GHz band. Those bids just tipped the $837 million bid by Telefónica UK for 20 megahertz of spectrum in the 800 MHz band. Those licenses did come with a coverage caveat that the carrier must provide “mobile broadband service for indoor reception to at least 98% of the U.K. population (expected to cover at least 99% when outdoors) and at least 95% of the population of each of the U.K. nations – England, Northern Ireland, Scotland and Wales – by the end of 2017 at the latest.”
Hutchison 3G placed $342 million in winning bids, picking up 10 megahertz of spectrum in the 800 MHz band. The carrier had previously picked up 30 megahertz of spectrum in the 1.8 GHz band from EE as part of that carrier’s agreement with Ofcom to launch LTE services.
Rounding out the spectrum winners was BT’s bidding subsidiary Niche Spectrum Ventures, which forked over $284 million for 30 megahertz of paired spectrum in the 2.6 GHz band and 20 megahertz of unpaired spectrum in the same band.
IHS’ Gleeson noted the move will allow BT to re-enter the mobile space after having sold off its O2 operations in 2005 to Telefónica, though with holdings only in the 2.6 GHz band, he did not think the carrier would offer consumer-facing services.
“The two more likely options are it could wholesale extra capacity to the four mobile operators and the many virtual operators; or it could use the spectrum to provide high-speed broadband in areas where ADSL and even VDSL are limited by the copper access network,” Gleeson wrote. “These options are not mutually exclusive as the wholesale option would be mainly needed in urban areas, whereas the fixed-line replacement option would be needed in rural areas.”
Ofcom noted that winning bidders had until end of day Feb. 21 to pay outstanding balances.
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