British taxpayers can expect to make at least £1.4bn from the 4G spectrum auction, Ofcom said on Tuesday as it published a fresh set of proposals for the mobile broadband sale.
The new proposals (PDF) also say bidding for 4G spectrum will start in the first quarter of 2013, which is a bit later than some in the industry had hoped.
However, some of the spectrum — specifically, the 800MHz band — is still being used in some regions to deliver analogue TV services. It won't be cleared for mobile broadband until late 2013, which is when Ofcom now expects operators to start offering 4G services.
"The 4G auction has been designed to deliver the maximum possible benefit to consumers and citizens across the UK," Ofcom chief Ed Richards said in a statement. "As a direct result of the measures Ofcom is introducing, consumers will be able to surf the web, stream videos and download email attachments on their mobile device from almost every home in the UK."
The plans echo proposals made by Ofcom in January, but with some significant changes. One change should make sure mobile broadband coverage reaches even far-flung parts of Scotland, while another guarantees widespread indoor coverage.
In addition, the regulator has dispelled fears that Three will not be guaranteed to get 800MHz spectrum. However, it has halved the amount set aside for the UK's fourth-largest mobile operator.
Setting the reserve
The proposals mark the first time Ofcom has explicitly laid out the reserve prices of the various lots in the 4G auction. The total for the reserve is around £1.4bn, or £1.6bn if you include 1800MHz spectrum that may or may not make it into the auction.
When T-Mobile UK and Orange UK merged into Everything Everywhere, a condition of the European Commission's approval was that the merged operation get rid of some of its 1800MHz band — this could happen through either the wider 4G auction or a private sale.
At the 3G auction a dozen years ago, bidding went out of control, giving the Treasury an astonishing £22.5bn. Given the amount of time it actually took consumers to start using 3G on a widespread basis, this overpayment almost crippled some of the operators. It is very unlikely that they will make the same mistake again.
"Taking a complete punt, I would say this auction will raise £4bn," analyst Dean Bubley, of Disruptive Analysis, told ZDNet. "At that sort of price it works out at about £65 per person. To me that sounds reasonable, given the economic uncertainty and the fact that there is a risk that we end up creating overcapacity in mobile broadband."
The 4G auction was originally supposed to happen in late 2008, but Bubley said he did not think the UK had suffered because of the delay.
"In many ways this means that by the time the 4G networks get deployed, UK operators will have a much better idea about the likely pattern of demand, and will be able to get the second generation of LTE kit, which is cheaper," he said.
As for Ofcom, a spokesman also predicted that the bonanza of 2000 will not be repeated.
"Our motivation is not to raise money," the regulator's spokesman said. "Our motivation is to get a good outcome for consumers, and to ensure four credible national wholesalers."
The regulator has extended one of the more interesting parts of its January proposals in the latest tranche. Earlier, it wanted to see one of the operators that won 800MHz spectrum (which is good for long-distance services) forced to provide coverage to 98 percent of the UK population.
However, the new proposal adds a new element: the operator now has to provide 98 percent of the population with indoor mobile broadband coverage. In effect, that means more than 99.5 percent outdoor coverage as well.
"Our motivation is not to raise money. Our motivation is to get a good outcome for consumers, and to ensure four credible national wholesalers" — Ofcom
What is more, the operator will have to provide at least 95 percent coverage in each of the nations in the UK. That means it cannot just provide 100 percent coverage in England, where rollouts are generally cheaper, and leave those in rural Scotland with substandard service.
According to Bubley, the switch to mandating indoor coverage will have implications for more than just consumers.
"One of the interesting implications is that the indoor coverage is necessary from a machine-to-machine point of view as well as the consumer," he said. "The Coke machine can't go and stand by the window if it's got weak signal."
Ofcom's plan has always been to have...
...four operators hold enough 4G spectrum to be viable wholesalers — this approach is intended to promote competition by encouraging smaller operators that resell connectivity rather than having their own networks.
However, the regulator ran into a problem with the issue of sub-1GHz band, which some operators already have and others do not. This kind of spectrum allows services to propagate further with fewer masts, as well as providing better indoor coverage, when compared with the 2.6GHz band also in the auction.
Everything Everywhere, which has no sub-1GHz spectrum, used to have a guarantee that it would get 800MHz spectrum in the 4G auction, no matter what. However, Ofcom dropped that guarantee in January, saying operators with a lot of 1800MHz spectrum (which Everything Everywhere has) could use that for 4G and that would make up for having nothing below 1GHz.
Ofcom had also planned to set aside some 800MHz for Three or another new entrant, given that Three has nothing but 2.1GHz 3G spectrum right now. Three feared it would lose this guarantee, but Ofcom maintained it in the latest proposals.
However, given the fact that Three could pick up some 1800MHz spectrum from Everything Everywhere or through the auction, the regulator halved the guaranteed amount of 800MHz spectrum.
ZDNet has approached Three for comment on this, but had received none at the time of writing.
Previously, Ofcom suggested setting aside some 2.6GHz spectrum for "low-power shared use by operators of sub-national radio access networks". This would have made life easier for organisations such as universities to have their own private campus LTE networks.
However, that proposal has now been dropped, after Ofcom worked out that the benefits would probably not outweigh the capacity limitations it would create for national networks.
"We didn't have massive amounts of interest in it either," the regulator's spokesman said.
The new proposals are subject to consultation now, a process that will end on 11 September. Operators will be invited to take part in the auction by the end of the year, and bidding will kick off early next year.
Ofcom then expects winning operators to roll out their 4G networks from mid-2013 and start offering the services later. It still has to decide whether to let Everything Everywhere jump the gun by offering 4G services over its existing spectrum, although it has indicated that it is minded to allow this.