Ofcom UK 4G Mobile Broadband Auction Could Have Raised GBP5.2bn

Ofcom’s publication of a final set of information about the recent 4G (LTE) spectrum auction (800MHz and 2.6GHz) at the end of last week has revealed that Mobile Networks Operators (MNO) made total “theoretical” bids of roughly £5.2 billion or around £3bn more than the actual total of £2.368bn.

The official reserve price for the related spectrum originally came to a “combined total” of £1.36bn and some early predictions suggested that the auction itself might have raked in anything from £4bn to £6bn (below the overpriced 3G auction that created £22bn in 2000).

In particular the UK government’s Chancellor of the Exchequer, George Osborne, had specifically hoped to raise around £3.5bn from the auction and would have been displeased when the end result came in at a grand total of just £2,368,273,322 (here).

But the newly released documents suggest that things could have been very different had the regulator chosen a different approach to their auction strategy. According to The Guardian, Ofcom employed a second bidder rule meaning that the winning operator only had to pay slightly more than the next highest bidder in order to obtain their slice of the spectrum. On top of that Ofcom also lost out by setting aside spectrum for Three UK, which only paid the reserve price.

In fairness this approach, which is seen by at least one anonymous operator as an example of how the regulator “over-engineered the auction“, is used in other countries around Europe because it’s seen as a good method of preventing attempts to rig the bidding process.

In the end Vodafone only paid £802m for its spectrum (though they had bid up to a maximum of £2bn) and O2 paid £550m but theoretically bid £1.2bn. On the one hand this might be bad news for the government’s coffers, yet on the other operators will have more cash to hopefully re-invest in their networks and services. By comparison 3G based services were held back for years by high costs due in no small part to an over-priced auction process.

Ofcom’s Final 4G Spectrum Auction Data
http://stakeholders.ofcom.org.uk/../completed-awards/800mhz-2.6ghz/auction-data/