Chancellor George Osborne must be sweating ahead of his next parliamentary appearance, after his confident predictions that the 4G auction would raise £3.5bn for the public purse fell short. Considerably short. Of course, readers of Mobile would already know he was set for a disappointment, with operators predicting in December that the auction would earn less than the government hoped.
This was largely because of Ofcom's incredibly complicated auction process, which focused on creating a level playing field of 4G competitors, rather than raising revenue. Finance directors at each of the UK's four operators will have breathed a sigh of relief that they spent a fraction of the £22.5bn that was splurged on 3G services a decade ago. If anything, that held the market back for years as operators struggled with the burdens of that spending spree.
So the auction is great news for operators and aside from the pricetag, there are several interesting strands. Big spending Vodafone looks like it will push heavily for second place, armed with a large chunk of new spectrum as well as the fibre backhaul of Cable and Wireless, which it bought last year. Three's position as market irritant is set to continue, something it would not have any other way. It has now doubled its spectrum holding during the past 12 months and its aggressive acquisition spree for consumers will not slow down. EE got the sub-1GHz spectrum it had been hoping for although it did buy more spectrum than was expected. The higher frequency spectrum could be used in densely populated urban areas and to fill in any gaps in coverage.
Then there is O2. Britain's second biggest operator was the biggest surprise of this morning's news, buying 2x10MHz of 800MHz spectrum. It paid a lower price for the spectrum, having agreed to guarantee coverage to almost all of the UK by 2017. This bargain hunting is no surprise given the extensive coverage devoted to its pressures on spending and desire to cut back. But will this be enough to compete with its rivals? After the spectrum is formally bought, O2 will have 16% of spectrum. This is only a short step ahead of Three's 13%, despite it having almost three times as many customers. Can it stay ahead of a capacity crunch?
Attention will now turn to how the operators position their offers to compete with EE's existing 4G tariffs. It will be interesting to see if EE's results yesterday influence proceedings as the operator did not appear to be snatching customers from rivals. While EE has offered the likes of Clone Phone and film extras, it appears 4G on its own is not enough to draw consumers in huge numbers. We'll know more about operators' plans to do so by the summer.
Author: Graeme Neill