How the 4G auction works – and what the bidders want

Bidding in the 4G spectrum auction is set to start this week, pitting mobile operators against surprise contenders such as BT for a key slice of Britain’s airwaves.

How the 4G auction works - and what the bidders want

The UK is a long way behind other nations when it comes to next-generation mobile networks, but that could be set to improve with 4G services arriving as early as May – once the auction is over.

The bidding process is a complicated and closed affair, so we spoke to CCS Insights mobile analyst Kester Mann to find out what’s actually available, what the mobile operators are hoping to win, and when services might finally arrive.

Q. There were a trio of surprise bidders – how will the addition of BT and the others affect the auction?

A. We’ve got the four incumbents, as expected, and we’ve got the other people as well. However, we don’t expect these other players to be bidding to become national wholesalers – we think they’ll use it for niche ventures, such as for backhaul. It could make the bidding more interesting, but the most likely outcome remains the four main operators securing spectrum to enable nationwide rollout of 4G.

Q. Why is BT bidding for spectrum – is it for broadband infill?

A. That sounds like the most logical thing for BT – it’s said it has no plans to enter the mobile operator market, but it could use spectrum to support its existing broadband. We’re not expecting BT to bid heavily for spectrum to compete with other operators.

It’s a bit like an eBay auction in that you only have to beat your rivals by a small amount to secure spectrum

Q. The way the auction is set up means there are some 3,000 potential outcomes, but how does it actually work?

A. It’s a complicated system in a 176-page document [from] Ofcom. The complexity is from the fact that each bidder can bid for different amounts of spectrum within the two different bands – in the 800MHz and 2.6GHz ranges. Given the number of players and the fact that you can bid on a different number of the lots available and different frequencies within those bands, there is a large number of possible outcomes.

Q. How does the bidding process work?

A. The way it works is it starts off with an opt-in round and that’s basically for bidders other than Vodafone, O2 and EE making bids for the reserved spectrum, which Ofcom has put aside for what it calls “a fourth national wholesaler”. We anticipate that to be Three. So probably only Three will take part in that round.

The next stage is the “clock stage”, with a number of rounds for the auction, where Ofcom determines the price for each lot of spectrum in each round and then each bidder specifies the lots they want to bid for. Ofcom will increase the prices of those lots on a round-by-round basis until essentially there’s only one bidder. It’s a bit like an eBay auction in that you only have to beat your rivals by a small amount to secure spectrum.

Q. There’s a big chunk of airspace available – how has it been broken down?

A. In the 800MHz band there four lots, [that include] two 5MHz [sections], and one lot of two times 10MHz, which is a separate package that’s been called the “coverage requirement package” – one of the licenses requires a certain amount of coverage to make sure 4G reaches more rural areas and that’s one particular lot that companies can bid for.

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