The long-awaited 4G spectrum auction has now started in the UK--the first step required for mobile operators to roll out 4G services by mid-year.
The auction, which has been repeatedly delayed since 2008, will sell off portions of the 1800MHz and 2.6GHz frequencies for 4G LTE use, and is expected to raise up to £3.5 billion for the Treasury, although the reserve price for the spectrum has been set at just £1.36 billion.
Telecoms watchdog Ofcom said that it had designed the bidding process to prioritise protection of competition in order to ultimately keep prices down for users.
"The UK is the most price-competitive mobile phone market in Europe. Healthy competition means that UK consumers benefit from better services at lower prices than most other countries in the world," Ed Richards, chief executive of Ofcom, said in a statement on Wednesday.
"In order to maintain competition, Ofcom has designed the auction to ensure that at least four different operators have sufficient spectrum to be credible national 4G wholesalers. The net benefit of doing this, for consumers and the UK economy as a whole, will be very significantly greater than any immediate financial benefits from revenue raised by the auction," he added.
Bidders for the crucial spectrum allocations include the usual suspects, such as EE, Hutchinson 3G UK (Three), Telefonica UK (O2), and Vodafone. Other bidders for the spectrum include a subsidiary of BT called Niche Spectrum Ventures, HKT UK (a subsidiary of Hong Kong telco PCCW), and MLL Telecom.
While bidding will continue for the foreseeable weeks, the resulting outcome should mean that operators will be able to start switching on 4G services from around the end of spring or beginning of summer. Since the end of 2012, EE has been the only national network able to offer 4G services to its customers, following Ofcom's decision to allow the company to reuse its 2G spectrum for 4G.
The 800MHz and 2.6GHz spectrum have different properties, making them more suitable, and therefore desirable, depending on what the bidders want to do with it. For example, the 800MHz frequency offers better coverage and penetration than 2.6GHz, but will not provide as much capacity. As a result of the different properties of spectrum, they are being sold as combinations of lots.
"Each bidder is competing to win a combination of spectrum lots from across both the 800MHz and 2.6GHz bands. The amount they are prepared to pay for each individual lot will vary depending on how much of the other lots they could get at the same time. The auction lets people tell Ofcom what they would pay for specific combinations," Ofcom said in a statement.
Once the principal bidding stage is over, Ofcom will have a final single round of supplementary bids to allow bidders to submit their "best and final offers" for any of the packages that they are eligible to bid for. The final price for each lot is worked out using the "second price rule," meaning that the winning bidder pays the lowest amount they needed to bid in order to win.