How the 4G auction works – and what the bidders want
In the 2.6GHz range, there’s a total of 14 lots of 2x5MHz paired spectrum and various other lots of less desirable or more niche spectrum.
Q. And why are they sold in pairs?
A. That’s to reflect the need to uplink and downlink traffic using different channels.
Q. What are the chief differences between the two bands and what different uses and tactics might we see from the bidding operators?
A. The 800MHz frequencies are more desirable than the 2.6GHz because mobile signals tend to travel further and better at lower frequencies, so in theory it’s cheaper and more efficient for mobile operators to role out network.
The 2.6GHz frequency is generally considered useful in high-density urban areas like towns and cities and that’s probably the process that the operators will use, with 800MHz in the rural areas to cover greater geographies and the 2.6GHz used in more populated areas. Certainly, what we’ve seen in auctions in other countries is that the 800MHz has been more appealing. Both Vodafone and O2 already own spectrum in the 900MHz band, whereas Three and EE don’t own anything below 1GHz, so it’s particularly important for those guys to secure the lower spectrum.
Q. Will the incumbent operators be looking for slices from both allocations?
EE defends its 4G price hikes
A. Yes – it comes back to the number of permutations to the auction and they’ll all be looking for both types.
Q. Given that this is behind closed doors and closed bidding, when will we hear about the outcome?
A. We’re expecting the process to take several weeks, and it would be a surprise to see any news before the end of February or slightly after that.
Q. The big four will be assuming they will win spectrum, so presumably they won’t be waiting for the allocation before they get on with network upgrades?
A. We can be confident that your Vodafones and O2s have already been working on the technology ahead of the auction and as soon as they get the licenses I’d expect them to come to market with strong advertising campaigns. EE have had six months and they will want to get into the game. It’ll be interesting to see what happens in May or June, when the other guys launch.
Q. Will more players entering the market mean lower prices or larger data allowances compared to EE’s, or could inflated auction costs mean operators try to make that back as soon as possible?
A. EE’s 500MB for the low entry tariff was pretty disappointing, and it wouldn’t surprise me to see EE revisit that strategy when its rivals launch 4G services. Despite the huge cost involved, Vodafone and O2 will probably come in with more aggressive pricing. EE has a monopoly and was entitled to price it high, but it will get more competitive.
Q. The Chancellor’s hoping for £3.5 billion from the auctions – might it go higher or are companies currently cautious about investment?
A. It’s difficult to say. The reserve price is £1.3bn and George Osborne has come out and said he’s expecting £3.5bn, which was a bit of a surprise. Interestingly, what happened in the Netherlands just before Christmas was that the auction raised about three times what was expected, and that might indicate that the total price might exceed expectations, boosted by the three extra operators that have come into this. All we can be sure about is that the total amount raised will be far less than [the £22.5 billion] for 3G.