The war-rooms are being redecorated back to their former lives as broom cupboards and the game theorists have been paid their dues. Operators are counting the costs of the recent 4G auction, which will see next generation services coming to consumers of all telcos from late spring.
As Mobile predicted in December, the auction raised far less than the £3.5bn Chancellor George Osborne was hoping for. But while the public purse was the biggest loser of the auction, earning only £2.37bn, who were the winners?
The curious case of O2
Strategically shrewd or comprehensively outbid? The UK’s second biggest operator was one of the lowest spenders, spending £550 million on low frequency spectrum. Opinion is split as to how it fared, and we won’t know for sure until the full bidding process is revealed by Ofcom.
Daniel Gleeson, mobile media analyst at IHS, felt the results left O2 in a difficult position. He said: ‘Without high capacity 2.6GHz spectrum, coupled with the need to focus on a countryside rollout, it is possible that O2 will lose the battle for network quality in major population centres. This will be a major concern because O2 has the largest number of valuable iPhone subscriptions in the country.’
Matthew Howett, analyst at Ovum, said: ‘The relatively low value bids suggest that a player of O2’s scale could have found more cash if it wanted to, which suggests that this was a strategic decision.’ He said the options for O2 could be making the spectrum it won work harder, or refarm existing spectrum for 4G. Either would be a ‘strategic gamble’ for the operator.
Ronan Dunne, O2 CEO, said the 2.6GHz spectrum was priced at the high end and said it will be able to meet capacity by refarming spectrum or using its wi-fi service. While the auction outcome means O2 is only three percentage points ahead of Three in its total spectrum holding, despite having nearly three times as many customers, Dunne said ‘that’s like comparing a Mercedes Benz with a Hyundai’. He said: ‘Deep coverage is only provided by low frequency spectrum. The very fact that the auction took place in 2013 was because the people who didn’t have low frequency spectrum were agitating for it.’
Hey, big spender
Vodafone also caught the eye, spending almost £800 million in the auction for both low and high frequency spectrum. IHS’ Gleeson said: ‘Just four years ago, in 2009, Vodafone has a lock on the second-place ranking in the UK wireless market, slightly behind leader O2. However, the merger of Orange and T-Mobile into Everything Everywhere relegated Vodafone to third place, several million subscriptions behind the top market player. By leading the way in spectrum spending, Vodafone has made a statement it intends to reclaim its former position in the market.’
What seems likely is Vodafone will marry the acquired spectrum to the fibre backbone it bought last year with its Cable & Wireless Worldwide acquisition. CEO Guy Laurence has already said indoor coverage will be a key plank of its strategy.
EE and Three were arguably less exciting, along with BT’s capacity heavy spending. Both mobile operators already own 4G ready spectrum, with Britain’s biggest operator the first to market with a next generation proposition last October. IHS’ Gleeson suggested EE’s low frequency win would be used for rural coverage and some in-building reach in cities. However, in the longer term Gleeson agreed with recent comments by Telecom Italia CEO Franco Bernabè, who said a 2x5MHz holding of low frequency spectrum is not enough on its own for a 4G offer.
Three’s low frequency win was in addition to the 1800MHz holding it bought from EE last year. Ovum’s Howett said: ‘[This] puts it in a strong position to roll out its 4G network. This will be a relief to many Three customers who have experienced reception problems at some point due to the propagation characteristics of its 2.1GHz spectrum.’
Operators can now, of course, look forward to the next bout of spectrum bidding, likely to take place by the end of this decade, in addition to refarming existing holdings. But this auction marks the end of several years worth of delays, squabbling and legal threats. Howett said: ‘The reality for each of the UK players is now clear: they must implement commercial strategies to earn returns on these investments.
The talking is over and competition must begin.
Author: Graeme Neill