UK Operators Prepare to Battle over 4G Spectrum

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With thousands of possible results, the auction of airwaves could throw a few surprises

Mobile network operators in the UK finally get the chance to bid for 4G spectrum next week as the controversial and much-delayed auction finally kicks off.

The sale will be the largest-ever of mobile frequencies in the country, boosting the available airwaves by 75 percent. It'll play a crucial role in meeting the demands of one of Europe's most data-hungry markets, as well as in shaping the immediate futures of the four national operators.

We expect to see some intensive bidding over the next few weeks as the networks scramble to secure vital capacity to launch 4G services. In particular, the sale of spectrum in the 800 MHz band suitable for wide-area coverage will be hotly disputed. But the process won't be straightforward — the blind bids used in the auction mean there are more than 3,000 potential outcomes.

As well as the four incumbent operators, three other contenders — BT, Hong Kong-based PCCW and local provider MLL Telecom — will also line up on the starting grid. Other telecom and media firms, such as BSkyB, TalkTalk and Virgin Media, all of which were touted as potential bidders, have declined to take part. That's not to say we don't expect these firms to be involved with 4G, but they'll probably be restricted to forming wholesale relationships with licence winners. Given the cost of acquiring licences, building networks and promoting services, their absence is unsurprising.

Chancellor George Osborne has already pencilled in proceeds of £3.5 billion from the auction and the presence of new players may drive higher the amount raised for the government's coffers. However, it's unlikely to come anywhere near the £22.5 billion secured from the sale of 3G spectrum in 2000. Nevertheless, an auction in the Netherlands last month earned the government almost three times more than expected, and this is sure to be playing on the minds of bid teams as they begin the auction.

Dutch operator KPN has been quick off the mark to promote 4G services, and we expect nothing less from the eventual licence winners as they try to close the gap on EE, which received permission from regulator Ofcom to repurpose some of its 1800 MHz holdings for 4G before the auction. I'm expecting the roll-out of 4G to be faster than any new network in the UK and operators to battle fiercely over coverage and capacity. A prompt and effective start to services will be crucial to initial consumer perception of the technology.

EE will have enjoyed a six- to eight-month head-start by the time its rivals launch 4G services, probably in May or June. However, its failure to focus on innovative services rather than simply speed could allow new players to quickly close the gap. In my view, EE should focus its marketing more on services such as Clone Phone, EE Film or the free access to BT Wi-fi offered as part of its tariffs.

I also expect the new operators to adopt a more aggressive approach to pricing. I was disappointed that EE's entry tariff of £36 a month offers only 500 MB of data — enough for little more than a couple of hours' streaming on the BBC iPlayer. It's been a tough product to sell, with T-Mobile customers being offered an iPhone 4S with unlimited data for £26 a month in the same stores.

We're certainly set for some fascinating developments in the weeks ahead. But we shouldn't get too excited. Despite the great strides taken by EE in recent months, it's worth remembering that the UK still lags behind many other markets in rolling out 4G services. In fact, by the time EE gains some competition in the UK, the world's leading market, South Korea, is likely to have close to 40 percent of its mobile customers already using 4G networks.