John Delaney, Research Director, Consumer Mobile – IDC comments:
The UK regulator, Ofcom, has announced the results of its 4G spectrum auction. Five bidders have won new spectrum: the four existing UK mobile operators, and Niche Spectrum Ventures, a subsidiary of the UK fixed-line incumbent BT. EE and Vodafone have acquired spectrum in both of the bands that were up for auction, 800MHz and 2.6GHz. Hutchison (3) and Telefonica (O2) have acquired only spectrum in the 800MHz band. Niche Spectrum Ventures has acquired spectrum only in the 2.6GHz band. There were two unsuccessful bidders, MLL Telecom Ltd and HKT (UK) Ltd. The total amount bid by the five successful bidders was £2.34 billion.
I recently wrote an article about the lessons that UK mobile operators can learn from their experiences with 3G. The most immediate lesson that sprang to my mind was this: don’t over-pay for the spectrum. It turns out that the UK operators have learned, assimilated and applied that lesson pretty thoroughly. With 3G, the UK was one of the first countries to auction new spectrum, but with 4G, it’s one of the last. One good consequence, for the UK operators, is that they have access to plenty of pricing benchmarks. The auction results in countries such as France and Germany indicated that at the going rate, the UK auction would probably raise somewhere between £3 billion and £4 billion. In the event, the operators have been able to gain the new spectrum that they need for less than that – a happy result for them, though a less happy one for the UK Treasury, which was counting on receiving about £3.5 billion.
As well as providing benchmarks for spectrum pricing, the experience of European countries that were earlier to market with 4G also indicates that customers’ interest in 4G as a new service in its own right is fairly limited. For example, Vodafone launched 4G in Germany at the end of 2010, and 18 months later it had acquired 193,000 4G subscribers (although it’s important to note that for almost all of this period, no 4G smartphones were available – only dongles and routers). Moreover, although the first operators to market with 4G have priced it at a premium over 3G, that premium has eroded quite quickly once 4G is also available from competing operators. In the UK, we have seen that premium start to erode even before the emergence of 4G competition, with EE’s announcement of its new, cheaper 4G price plans in January 2013.
Another big difference from the 3G auction is that the 4G auction seems not to have been the means of introducing a new mobile operator into the UK market. There is one successful bidder for spectrum in addition to the four existing mobile operators, Niche Spectrum Ventures, which is a subsidiary of BT. However, NSV has only bought spectrum in the shorter-range 2.6GHz band, which would make it very expensive to roll out a network as a full-service, nationwide mobile operator because of the large number of base stations that would be needed. Rather, the spectrum that NSV has acquired indicates, perhaps, a strategy based on broadening wide-area access for customers of BT’s fixed-line broadband services – a sort of “super-wifi hotspot”.
The 3G spectrum auction took place at a time when the mobile industry was booming. By contrast, the 4G spectrum has been auctioned at a time when the mobile industry is mature. Demand for mobile internet services is growing very strongly, and that is driving strong growth in revenues from mobile data. However, those growing data revenues are essentially compensating for the decline in revenues from mobile voice and data. In total, European mobile revenues are more-or-less flat. Operators certainly need 4G and its associated spectrum in order to carry on growing their existing data business, by improving the performance and capacity of mobile data networks. But the amounts of money that operators are paying for 4G spectrum indicates scepticism about 4G as a fundamentally new service that will generate big streams of new revenue.