Government Confirms Long-Awaited Spectrum Auction

The long-awaited and much delayed auction of parts of the UK wireless spectrum is to take place in late 2011, the government has today confirmed.

On Wednesday, Minister for Communications, Ed Vaizey, launched the programme for radio spectrum modernisation. This auction should “allow mobile operators to deliver the latest technologies to consumers and extend the reach of mobile broadband across the country,” said the government.

“The past 20 years has seen a revolution in mobile technologies and devices that have transformed the way we communicate, learn and do business,” said Vaizey. “We want the UK market to remain at the fore of delivering devices like the iPad and smartphones, but they need the networks to continue to improve and increase services.”

“Under our plans, our mobile industry will have access to the 21st Century infrastructure it needs to give UK consumers the latest technologies and even better coverage for broadband on their mobile phones,” he added.

Long Time Coming

Ofcom has long had plans to hold an auction for two chunks of radio spectrum – some around 2.6GHz which was originally planned for use by 3G mobile services, and some around 800MHz. However, these auctions have run aground on political indecision for many years now.

Today’s announcement that the auction will take place in late 2011 confirms previous predictions at the Westminster Media eForum in January, that the proposed auction of spectrum licenses would take place sometime in 2011. Indeed, there were some doubts that the auction would happen at all, because of Ofcom’s uncertain future under a Conservative government. (The Tories had threatened to abolish Ofcom, which would have thrown the whole auction process into question).

But the government has today confirmed that the spectrum modernisation programme will be implemented under a Direction to Ofcom. The new Direction is said to be a simplified version of that proposed by the previous government.

Combined auction

The Direction states that Ofcom will co-ordinate a combined auction of 2.6GHz and 800MHz spectrum as soon as possible. Additionally, the communications regulator will carry out a competitive assessment of future 3G and 4G markets, including the potential for new entrants.

“Their assessment will inform the design of the auction, aimed at enabling delivery of new competitive mobile broadband services for UK consumer and business benefit,” said the government.

It will include liberalising 2G spectrum at 900MHz and 1800MHz, implementing the EU’s revised GSM directive to allow operators to use these frequencies for 3G technologies and making 3G licences indefinite to encourage greater investment in 3G services to reach more consumers across the UK. They will also be made tradable, and will require Ofcom to apply annual licence fees to reflect the market value of these licences which will be applied after the initial licence term.

The Minister also announced funding for a compensation package for those moving out of the 800MHz spectrum.

Costly Exercise?

However, it remains to be seen how the auction will be structured, and whether only those operators with very deep pockets will be able to take part.

Back in early 2000, the then Labour government reaped a massive “windfall tax” thanks to the auction of the 3G spectrum. The government offered a limited number of licences and the licence applications were presented as sealed bid auctions, which meant that mobile operators were forced to commit huge sums of money in order to secure a licence.

The UK government therefore got its hands on a whopping £22.5 billion from that auction, but the huge amounts involved left the mobile operators cash-strapped and ill equipped to roll out 3G services amid the recession of 2001. Indeed, analysts have subsequently questioned whether the operators have ever been able to recoup their investment.

Whilst it is unclear at this stage what form the auctions will take, what is known is that the auctions have been made possible thanks to spectrum being freed up as the analogue television signal is replaced with digital broadcasts. In Cornwall for example, the analogue TV signal has been switched off, and now commercial trials of new high speed mobile broadband (such as LTE) are currently taking place in that region.