Following the results of Ofcom’s “4G auction”, this article analyses the results and what this means for the future of the UK mobile internet market, and looks ahead to future developments such as 5G.
On 20 February, Ofcom announced the winners of the UK’s “4G auction”. These were Vodafone, Telefonica UK, Everything Everywhere, Hutchison 3G UK (“Three”) and Niche Spectrum Ventures (a subsidiary of BT). The auction related to two separate spectrum bands (800MHz and 2.6GHz) being sold to network operators to offer 4G services to consumers and businesses.
4G or “Fourth Generation” technology refers to certain wireless mobile internet technology and standards such as the GSM LTE (Long term Evolution) and WiMax that permit spectrum to be used more efficiently. This means that users will be able to transfer data over the mobile networks up to 5 times faster than with 3G, at a speed approaching that of fixed line home broadband. The 800 MHz frequency that was auctioned off was originally freed up as part of the digital dividend, for instance through the switchover from analogue to digital terrestrial television.
The full results of the auction were1:
Click here to see table.
The biggest winners were Vodafone, who spent £200 million more than their rivals and as a result will have the joint largest allocation of the prized lower band frequency of 800MHz. This frequency will permit Vodafone to offer broader coverage particularly for indoor use than the 2.6GHz band, which can provide greater capacity.
However, Vodafone’s licence fee fell far short of its £2 billion maximum offer and the auction as a whole raised far less than the £3.5 billion Office of Budgetary Responsibility estimate announced by George Osborne in his 2012 autumn statement. The amount raised also fell far short of the £22.5 billion raised by the 3G auction in 2001, although this was largely as expected.
According to Ofcom’s original consultation on the auction, one of the primary objectives of the auction process was to promote “future competition between credible national wholesalers.”2 This was reflected in the auction requirement for there to be at least 4 holders of a minimum amount of spectrum and for caps on the amount of spectrum for which any one operator could bid.
Ofcom had already allowed one of the bid winners, Everything Everywhere (EE), to steal a march on its competitors by amending EE’s licence for its existing 1800 MHz band allocation to permit it to offer 4G services. EE has already started rolling out 4G services and currently markets 4G services from around £12.99 per month. Prices are however likely to fall in due course as a result of increased competition following the auction process.
What will happen next?
The next stage in the process is the “assignment” or allocation of exactly where within the 800MHz and 2.6GHz bands each operator’s new spectrum will be located; bidding is expected to commence shortly. Telefonica’s spectrum comes with a coverage obligation, requiring it to provide indoor mobile broadband coverage to 98% of the UK’s population by the end of 2017. Ofcom expects the bid-winners to begin rolling out services from mid-2013. Three however will reportedly only roll out services at the end of 2013. Ofcom is also currently consulting on liberalising spectrum owned by Three and Vodafone in other frequency bands, so they can be used for 4G services.
Looking beyond 4G
The completion of the auction process means that the main UK-based communication service providers are now in a position to start realising the benefits of their investments. Equally, the next phase of the development of mobile and wireless communications services has started, following the announcement by the European Union on 14 March 2013 of €50 million of funding for research into delivery of 5G technology by 2020. This funding is expected to support projects such as METIS2020 (Mobile and wireless communications Enablers for the Twenty-Twenty Information Society) which aim to bring together traditional communication service providers with the wider industry and, increasingly, non-traditional players such as the automotive sector, to collaborate on laying the foundations for the next generation mobile and wireless communications services.
At a local level the UK government has also recently announced that, in conjunction with industry partners such as Huawei and Samsung, £35 million of funding will be made available for the funding of a 5G Innovation Centre. The purpose of this centre (based at Surrey University) will be to commence trials of 5G technologies and concepts later in 2013 and to use the outcomes to provide inputs into 5G standards development. Early indications are that while there are already processes and techniques for increasing data throughput in each cell over the current 4G standards, it is likely that true benefits will only be realised through access to additional spectrum. One of the areas to be explored will be extremely high frequency bands extending to 50GHz.
5G WiFi services are slightly more advanced given the introduction of the standard IEEE 802.11ac, which is the fifth generation standard for WiFi networking. The anticipated benefits such as higher data throughput by working in the 5GHz spectrum arise primarily because there is currently less competition in that part of the spectrum and also because each channel is much larger than under the IEEE 802.11n standards which operate in the 2.4GHz spectrum.
So why mention this in an article about the 4G auction? While operators are building out their 4G networks, they will be aware that the ever growing downloads and streaming data load will require some means of off loading traffic from their main networks; 5G WiFi may offer a solution going forward.
There is currently a hive of activity in standards and technological development. Following the roll out of the 4G networks, this will increase as operators seek to develop their networks to gain an advantage over their competitors. It would be in the industry’s best interests to become involved at this early stage in the future development of the current 4G standards and in the research projects for 5G networks such as those announced by the EU Commission and the UK Government. This will help to ensure that everyone has an ability to influence the direction that both academic and industrial research takes, as well as influencing the regulatory frameworks which will be developed at the UK, EU and international level.