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4G radio spectrum auction: lessons learned

The Office of Communications (Ofcom) achieved its objective of maintaining a competitive market with a number of competing providers in the first major sale of radio spectrum in over ten years, according to a report to Parliament from the National Audit Office. However, the national watchdog cannot yet conclude that the auction was economically efficient, because it is not yet possible to assess whether those who were allocated spectrum during the auction are able to make the most effective use of it.

The spectrum sold in 2013 significantly increases the quantity of spectrum in use for wireless communications. It allows for much faster mobile communications technology (often referred to as 4G). The auction raised £2.4 billion and Ofcom estimates it will provide benefits for consumers estimated at £20 billion.

The four existing national operators (EE, Three, O2 and Vodafone) all won spectrum through the auction process.  They now hold sufficient spectrum to ensure their medium-term viability, as assessed by Ofcom. A new entrant, BT Niche, was also allocated a substantial holding of the spectrum.

Since the auction took place, all four of the existing mobile network operators have started to roll out 4G services. EE was allowed to offer 4G services from October 2012 using its existing holdings of spectrum.

According to today’s report, whether or not the auction succeeded in allocating spectrum to those who can make best use of it will start to become apparent only as the spectrum is brought into use by the winning bidders.

Ofcom has statutory obligations to citizens and consumers and had no objective to achieve any particular level of proceeds. However, the NAO compared the level of proceeds achieved, £2.4 billion, with the amounts obtained in other European 4G auctions and found that proceeds were within the range achieved in those other European auctions.

Ofcom found that without intervention in the auction the smallest operator (Three) or a new entrant might not acquire the spectrum it needed to be an effective constraint on its rivals. It, therefore, reserved part of the spectrum for such an operator. Three successfully acquired this reserved spectrum through the auction. The Smith Institute calculated that the proceeds were £159 million lower than they would have been had the radio spectrum won by Three not been reserved for it or new entrants to the market. (This is assuming that bidders would have bid in exactly the same way had spectrum not been reserved for a new entrant.)

Notes for Editors

83m

Mobile connections in 2013

£20bn

Ofcom estimates of economic benefits expected from the auction

£2.4bn

Proceeds raised from the auction

800 MHz and 2.6 GHz

Spectrum being auctioned

250 MHz

Of bandwidth available at the auction

70 per cent

Increase in spectrum in use following the auction

7             

Bidders in the auction

5

Winners of spectrum in the auction

1. The Department for Culture, Media and Sport has overall policy responsibility for telecommunications including mobile communications and spectrum management. It has an objective to support the introduction of 4G mobile communications to the UK. In the UK, private sector holdings of spectrum are regulated by Ofcom.

2. Ofcom put particular weight on its duties to promote the interests of citizens and consumers, where appropriate by promoting competition. It had no responsibility to achieve any particular level of proceeds.

3. There were 83 million mobile connections in the UK in 2012. Most people now use a mobile phone and, increasingly, mobile internet services.

4. Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.

5. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 860 staff. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of almost £1.2 billion in 2012.

PN: 18/14