Mobile giants ready for battle in 4G free-for-all

The airwaves being sold operate in the higher frequencies and have been used by the Ministry of Defence, reports The Times.

Ofcom had earmarked them for sale this year to boost 4G networks but has now said that the auction will take place early next year, with no limits on how much a bidder can buy or who participates in the auction.

The structure of the auction could trigger a bidding war among telecoms companies that need those resources to meet the insatiable appetite among consumers to use data on their phones.

The merger of Three and O2, for example, is partly justified by the need to combine their spectrum holdings — the airwaves used for wireless communication — to avoid a capacity crunch. The amount of spectrum to be sold in this round is equivalent to three quarters of that sold in 2013.

James Barford, an analyst at Enders Analysis, said that mobile data volumes were growing at about 80 per cent a year, which is putting pressure on mobile networks. “That makes spectrum much more valuable,” he said.

The auction of 3G licences generated a staggering £22.5 billion for the Treasury in 2000 as the five mobile phone companies bidding bet that the new network technology would generate billions in profits.

Yet 3G proved to be a financial flop and the original 4G auction in 2013 generated a disappointing £2.3 billion, well below the £3.5 billion that the Treasury had pencilled into the budget. The receipts were lower largely as a result of a complex bidding structure designed to ensure that all four networks would receive an allocation of spectrum to preserve competition.

The new auction is designed as a free-for-all, raising hopes that it could generate a huge return for the Treasury. It is also open to any bidder, meaning that the likes of Google or fixed-line companies such as Relish, the broadband company backed by PCCW, of Hong Kong, could choose to bid.

One industry source argued that the auction should have been delayed with competition regulators poring over BT’s £12.5 billion takeover of EE and Three’s £10.25 billion acquisition of O2. That could complicate the bidding process. “They have structured the auction this way to maximise the return and to get as much as possible as quickly as possible,” the source said.

Ofcom has set a reserve price of only £70 million on the spectrum, which some argued could suggest that expectations for the auction might be low.

Bengt Nordström, the chief executive of Northstream, the telecoms consultancy, said the MoD spectrum was particularly well suited to video content and would make it easier to watch live streaming on new smartphones.

He added that the cost of the new spectrum would not be borne by consumers. “The UK already has strong price competition. The overall consumer trend is to use more and more data, but pay the same price. Freeing up new spectrum won’t change this,” he said.