4G auction falls far short of £3.5bn target

Ofcom has raised just £2.34bn from the mobile companies vying for 4G, the new superfast broadband speed.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013

The pointy heads at the Office for Budget Responsibility had forecast that the auction would raise £3.5bn for the Treasury but, in fact, the department was probably banking on it raising a lot more: after all, 3G raised £22bn when it was introduced back in 2000.

The winning bidders - Everything Everywhere; Hutchison 3G UK; Niche Spectrum Ventures, a BT subsidiary (BT spent £200m, quite the chunk of change for a telco giant that doesn't actually have a mobile business - watch this space); Telefonica (O2); and Vodafone – only stumped up 2.34bn in total – a shortfall of £1.16bn.

Speaking to the BBC, Ed Richards, chief executive Ofcom, admitted that the disappointing figure was reflective of the ‘very, very different times’, but said that the auction was still, broadly, a success. ‘What we were trying to do was ensure that a valuable economic resource was brought into productive commercial use,’ he said.

So what’s so great about 4G? Here’s the skinny (non-geeks look away now). Ofcom has auctioned the 4G service in two bands: 800MHz and 2.6GHz, which covers two-thirds of the radio frequencies used by modern wireless devices, from smartphones to laptops. This range is important, as it will allow 4G to be widely available across the UK – covering 98% of the population (even indoors – oo-er!), and will ensure that the data pipe doesn’t get clogged up in densely populated urban areas.

Early estimates posit that the 4G rollout will be worth some £20bn in ‘benefits’ to UK consumers.

This is real digital progress, and has wide-ranging implications for e-commerce, media streaming, smartphone payments and opens up a raft of opportunities for advertisers looking to engage with consumers. This is why the damp squib of an auction is slightly disappointing.

However, government did rather shoot itself in the foot giving EE the rights to 4G before any other mobile provider, creating a whole lot of bad blood in the industry. Without the clout of a multi-operator roll-out, very few users have actually signed up (EE had to slash its prices in January to encourage a few more nibbles at the 4G line).

Everything Everywhere (the catchy new name for the Orange and T-Mobile brands) made quite a splash with all those ‘six degrees of Kevin Bacon’ ads touting the benefits of 4G. But it looks like EE blew so much of its budget on marketing 4G that it couldn’t afford to pick up much of the actual 4G spectrum. Vodafone was the highest bidder, staking £791m for five chunks of the spectrum.

Typical case of chickens being counted, plucked and sold before the eggs have hatched…

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