National Audit Office Probes the UK 4G Mobile Spectrum Auction

The National Audit Office (NAO), which is responsible for scrutinising public spending on behalf of Parliament, has confirmed that it will investigate whether or not Ofcom’s underperforming auction of the 4G (LTE) based 800MHz and 2.6GHz mobile broadband spectrum has delivered “value-for-money“.

The government originally estimated that the auction would rake in around £3.5 billion and Ofcom revealed last month that Mobile Networks Operators (MNO) had made total “theoretical” bids of roughly £5.2 billion (here). But despite this the final tally came in at a decidedly lower than expected £2.368bn.

Apparently the reason for this is because Ofcom had adopted a more secure auction strategy, which employed a second bidder rule. In other words 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 Three UK only needed to pay the reserve price for its slice of the 800MHz band.

Ofcom had previously also warned that the government’s more aggressive coverage commitments, which obliged mobile operators to rollout 4G services for “indoor reception” to at least 98% of the UK population (99% when outdoors) by the end of 2017 (originally this was supposed to be around 95%), could result in operators making lower bids.

Helen Goodman MP, Shadow Communications Minister, said (The Guardian):

“It is entirely right that the National Audit Office has launched this investigation. Serious questions must be answered as to why the Conservative-led government ended up £1bn short of the estimate George Osborne had provided just months earlier. When the 3G auction took place, Labour ensured that maximising revenue was an objective. The Conservative-led government did not do the same for the 4G auction, which I believe was a serious mistake.”

In fairness many tend to regard the original 3G auction in 2000, which raked in an earth shattering £22bn, as having been wildly overpriced and one of the key reasons why operators initially struggled to invest in 3G. Indeed the market for 3G services only really came to life between 2007 and 2008 when a combination of affordable Mobile Broadband deals and new Smartphones (e.g. iPhone3G) began to enter the market.

The flip side of this coin is that mobile operators will now have more money to hopefully re-invest in their networks and services, which should in theory lead to a more affordable market for consumer services and one that could in turn boost the country’s revenue from ecommerce (online sales, shopping etc.). In many ways it’s a miracle that the auction even happened at all, especially with the mass of legal squabbles that have held the effort up for the best part of 4-5 years.

Meanwhile Ofcom has repeatedly described the auction as a “success” (well they would do) and said that it was “designed to promote competition and ensure coverage, rather than to raise money“. It should also be said that NAO investigations like this are somewhat par-for-the-course.