The sale, which is due to take place next year, will be the largest spectrum sale to date. The Government will sell off two frequencies. 800MHz (which will be freed up during the switch to digital TV) allows signals to travel further, and is thus perfect for covering hard-to-reach rural areas; while the speedier 2.6GHz will be put to use in urban areas, where operators are struggling to cope with the demand created by bandwidth-hungry smartphones.
Sounds straightforward enough. But industry watchdog Ofcom is keen to ensure there are at least four companies providing the service, to promote competition. So it’s imposed some conditions: a ‘spectrum floor’ will ensure each operator gets a certain amount of the low-frequency end of the spectrum, forcing them to provide coverage in rural areas, while there'll also be a ‘spectrum cap’, which will limit the amount of airwaves one operator can own. In addition, all bidders will have to extend their coverage to at least 95% of the population (so, more than just the high-yielding urban areas).
The spectrum cap will be least popular with operators, who argue that it distorts the market. But, as one analyst pointed out, Ofcom is ‘stuck between a rock and a hard place’: if it doesn’t impose a cap, it risks further market consolidation as operators gang together (a la Orange and T-Mobile) to maximise the amount of spectrum they own. Which isn’t necessarily in the interests of customers.
The downside, however, is that imposing all these stipulations will probably drive down the price. During the last auction in 2000 (back when 3G was the hot new thing), the Government netted a cool £22.5bn. This time, though, the profit is likely to be a fraction of that: Germany, for example, raised €50bn for its 3G auction, then just €4.3bn at its 4G auction last year. As such, analysts reckon the Government is only likely to make about £2bn this time round.
That's not necessarily a bad thing; the operators continue to claim that because they were forced to pay so much for the 3G licenses, they had no money left to invest in them afterwards (plus it might mean higher prices for users). But at a time when the public finances are really feeling the squeeze, George Osborne must wish he could look forward to the same sort of windfall Gordon Brown enjoyed.