4G Auction: Ofcom Does The Sensible Thing

Ofcom must be pleased with itself today. The US looks like losing a mobile operator, but the UK’s regulator has taken steps which it says will make sure the same thing doesn’t happen here.

There seems to be something magic about the number fou. That’s how many operators make for good competition, in Ofcom’s view, and that is its explicit aim in setting floors and caps to the amount of spectrum any one operator can hold, in the 4G spectrum auction, which was finally announced today.

So it is ironic that the US regulator, the FCC, is now facing the prospect of the number of American operators reducing from four to three, as AT&T announced plans to buy T-Mobile’ USA.

The FCC will have to decide whether to allow the situation – which technically is not anything like a monopoly, but will face stiff opposition from Verizon – while the UK’s Ofcom can congratulate itself with taking steps to prevent such a thing happening.

Revenue versus services?

It also looks like Ofcom may be learning from lessons which go back much further, to the original 3G auction. This was massively hyped and run to get maximum money for the treasury.

In that respect it was a success, raising £22 billion. But in other ways, it saddled operators with huge debts, causing BT and other operators years of pain and (arguably) delaying the actual roll-out of 3G services, because the operators were all-but bankrupted by the amount they had to borrow to buy the licences – and they couldn’t afford to build the 3G networks.

This time round, it looks as if Ofcom is concentrating on the long term, and not just on short-term financial gains for the Treasury.

There has never been any possibility that the auction could produce anything like the billions which the government raked in last time round. Despite the huge valuations that are posited for social media and some mobile sites, we aren’t in the kind of bubble where an operator can borrow insane amounts for spectrum to use for future servics.

But still, an auction without any limits might have generated more money – and we feel sure the government would be tempted to go that way.

The limits should go a long way to preserving competition – although they can’t guarntee it, of course. Every operator continues to have to deal with a knife-edge between margins, investment and customer service.

Operators need to get enough spectrum to continue to the next level – Level 4G – of the mobile game. But that on its own isn’t enough to guarantee their long term survival.

However, Ofcom should be applauded for taking steps towards setting up an auction that could keep a good level of mobile choice in the UK.