Posts tagged ‘auction’

Who’s in? Deadline for applications for UK 4G spectrum auction closes

Thomas-Wehmeier_web

This post is by Thomas Wehmeier, Principal Analyst, Operator Strategies, Informa Telecoms & Media

Following swiftly on from EE’s launch of the UK’s first live 4G network just a few weeks ago, today marks the next important milestone in the establishment of a genuinely competitive market for 4G services in the UK.

The passing of today’s deadline for prospective bidders to submit applications takes us one step closer to the completion of the highly controversial, long-awaited and largest ever auction of spectrum in the UK. Bidding itself won’t actually start for real until January and we’re likely to see weeks of intensive bid rounds until the results proper are finalised by February or March next year.

As far as the UK’s mobile operators are concerned, this can’t happen soon enough. Despite the encouraging signs we’ve seen since EE went live, the UK is still lagging far and away behind the world’s most advanced 4G market(s). To put it context, by the time the remaining 4G networks are switched on at some point in the middle of next year, more than one-third of Korean and about 20% of Japanese consumers will already be actively using 4G services in their respective countries.

But that’s not to say that we don’t expect to see a marked acceleration in the pace of 4G adoption in the UK next year. By that point, most of the high-end flagship phones on sale in the UK will support 4G technology, we can expect to see some pretty competitive pricing as the markets kicks into life and the inevitable blanket market campaigns are sure to lift interest in and adoption of 4G amongst UK consumers.

How much is the auction expected to raise and who will bid?

It’s fair to say we’re expecting the amount raised to represent just a fraction of the record £22.5 billion spent during the 3G licensing round in April 2000. We have to remember that those were exceptional times, before the dotcom bubble burst and at the height of hype around mobile, and the industry will be much more cautious this time around, not least because of the weak economy and the declining revenues that many operators are suffering in the UK and across Europe.

In his recent Autumn Statement, the UK Chancellor George Osborne pegged the amount the UK Treasury is hoping to raise at £3.5 billion, which puts the official view slightly above industry expectations, but broadly on par with the amounts raised in similar auctions in other European markets such as Germany.

We’re expecting the auction to attract all the usual suspects , meaning the UK’s existing mobile operators Vodafone, Telefonica O2, 3 UK and, of course, EE, who’ll be looking to bolster their existing 4G spectrum position.

What we don’t know and can’t predict is whether we’ll see any wildcard bids. There’s been plenty of industry speculation about the possibility of some of the UK’s other telecoms and media powerhouses, the likes of Virgin Media, Sky or BT, entering the fray, but the experience of looking to other markets that have held similar auctions means we should be surprised if there is a genuinely disruptive and large-scale bid from one of the players. It can’t be ruled out, but it would certainly be unexpected.

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UK LTE finally gets a date

There’s playing hard to get, and then there’s Ofcom and LTE. After a seemingly endless period of delays, the UK regulator has finally announced that it has set a date for the auction of spectrum for 4G services – and that date, according to the Ofcom release is, – “as soon as possible”. The only actual date given is 11 September 2012, which is when consultation on the legal document that outlines the auction rules will close. (Yes, more consultations). After that Ofcom ‘expects’ the auction process to be start before the end of the year with the actual bidding process will take place is early 2012.

Ofcom said it expects the networks to start rolling out from mid-2013 with services live later in the year. So it could be a full year before consumers will actually be using LTE in the UK using this new spectrum. This seems like a long, long wait when the US has been up and running with LTE in a major way since Verizon launched services in December 2010. Across Verizon, AT&T, Metro PCS and U.S. Cellular, the USA now has around 15 million active LTE subscribers. Let’s not forget our friends in Korea – 4G adoption there has already reached 17% of the current mobile user base.

While the US and other parts of the world are clearly taking the lead for LTE, the consensus is that the UK is lagging the rest of Europe. However, when you look closely the rest of the continent isn’t too far ahead. Germany has had LTE since Vodafone launched in mid 2011, but according to Informa WCIS stats as of June 2012 only 0.26% of the country is using LTE. Italy and France has some coverage but subscriber numbers are yet to register. Telia Sonera launched the world’s first LTE network in December 2009, but as of June only 1.66% of its subscribers are using LTE. Placed in that context, the UK is not quite in the 4G backwater that some might think.

In fact, one could consider it beneficial coming late to the LTE party. By the middle of next year consumers will be able to benefit from more mature and more affordable LTE devices, due to improved technology and economies of scale. To take one, rather important example, Apple will have plenty of time to produce an iPhone and iPad with LTE chipset suitable for UK use. Even if LTE in the iPhone 5 isn’t ready for the UKs 800 and 2.6GHz frequencies, the next one certainly will be.

There’s also good news in the one of the 800MHz licences will require indoor coverage of 98% by 2017. This is a clever move, in that Ofcom only has to force one operator to do this, and the others will be likely to follow suit in order to keep up for competitive reasons. Ofcom has also given expected coveage figures of caround 98%. This, rather than speed, could in fact be the killer difference over 3G. Just this weekend I was out in the country, and while there was GPRS coverage, anything beyond patient checking of email was out of the question. If you can travel countrywide and always have the expectation of data access, then the revolution will not be televised – it will be streamed live to your smartphone.

Ofcom’s also decided to reserve some spectrum for a fourth operator, which as it points out might not necessarily be Huthison’s 3. Well, that’s a bit exciting. A bit.

If 3 doesn’t win the spectrum, it seems unlikely that it could continue in the long term in the UK and with fixed line providers such as BT, Virgin and even O2, having a nationwide wifi strategy, they could well have an eye on picking up that LTE spectrum.

Of course there’s still a chance that the UK could see LTE by the end of the year. Everything Everywhere has already submitted its application to launch LTE in the UK by the end of the year using refarmed 1800Mhz spectrum. In response to today’s news it’s released a statement to say: “the auction is only one step towards bringing 4G to Britain. Everything Everywhere is committed to bringing 4G to the UK this year, and the next milestone will be the regulator’s response to our request to roll out 4G over our existing 1800MHz spectrum without further delay.”

So once again, we’re left waiting for Ofcom. We have indeed hit a milestone, there are plenty more to hit, before the UK’s LTE story is anywhere near to properly getting going.

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Gaming the system: The long and winding road to UK LTE

With news reports of LTE networks popping up all over the place, writing about LTE as a UK-based journalist with a penchant for his iPhone, is something of a frustrating experience. The fact is that the UK will be one of the last major European economies to gain access to a next generation mobile  network, with actual deployments unlikely to see light of day before 2013 – and most likely the end of it.

With the cost of roaming still being so prohibitive (another issue that needs addressing), there’s only been one instance when I have properly made use of a 3G network in another country but it emphatically proved to me that mobile broadband in the UK is poor. This was in Israel last summer, where I swapped my O2 SIM in an iPhone 4, for a local one from Cellcom. It was a revelation. Data was fast and responsive, and more like using wifi back home. Back in the UK, the way if generally goes is that if you’re not in a major city, you won’t get 3G, and if you are, you’re hamstrung by poor latency and network congestion. Rubbish. So will LTE be a panacea for this? Well it certainly should be in terms of raw speed, but  in terms of coverage I’m not holding my breath it will be much better.

According to a recent report from the GSA there are now 49 LTE networks across 29 countries from the Australia and Brazil, Canada, Denmark, Germany, Hong Kong, Japan, Norway, the Philillipes, Saudi Arabia, Singapore, South Korea, and yes, Uzbekistan. Hell, even Estonia’s got one. In the US, once a smartphone backwater compared to Europe, Verizon and AT&T customers in many locations can now enjoy fast LTE speeds from smartphones, dongles and mifi units. And over here in London, home of the world’s greatest sectret agent, Dangermouse?

Nada. LTE, LTE everywhere, but for the UK, not a drop to drink.

And will no one think of the poor, soon to be underprivileged Blighty-based iPhone users? After all, it’s a near certainly that come the end of the year, the next iPhone will finally be LTE ready. In fact, it could even be ready for the iPad 3, which could appear on shelves as early as March of April. When the Apple droves upgrade to their next gadgets, UK users will be starting folornly at their new shiny, shiny, calling out despairingly, “Go, Faster, Dammit”.

As a reminder, spectrum auctions are kind of a big deal for governments, as they tend to raise a lot of mullah. Last time round, the UK government pocketed £22.5bn, though this time it’s accepted that it will be nowhere near this.

So why has there been such a delay for the UK auctions? The main reason is that UK auction will sell off spectrum in the 800MHZ and 2.6GHz bands, and the former will only become free once the analogue to digital switch over is completed, which won’t be until the end of 2012.

The problem was compounded in June 2011 when O2 claimed that the spectrum auction was illegal due to ‘spectrum floors’, which would give each of the four UK networks a minimum of 10MHz of spectrum below 1GHz in order to keep the market competitive. O2 points out that this would be a free hand-out to three and would amount to, “state aid and therefore illegal under EU law”. Whatever.

The carrier with most to lose with the delay to the auction was Three. The issue is that it’s running out of spectrum, which is rapidly being used up by its customers for data, a problem compounded by its, admittedly rather desperate, marketing strategy of being the only UK carrier to offer truly unlimited data for most of its packages.

Three’s problem is that while Vodafone, Everything Everywhere and O2 have received permission from Ofcom to refarm some of their existing 2G spectrum to 3G and thus alleviate their data congestion issues, Three has no such spare spectrum to play with. (The clue is in the name, I guess). Thus it sees the delaying tactics from its UK rivals as a cunning and dastardly ploy to squeeze it out of the market – which it quite patently is.

The whole business was recognised described by the Ofcom chief executive last November as prevarication tactic and pointed out that, “When litigation becomes essentially strategic rather than based on objective grounds, and when it has the effect of holding back innovation and hampering growth, it is legitimate to ask whether the overall legislative framework fully supports the public interest in this increasingly vital area”. In other words, the carriers were gaming the system.

The regulator wasn’t doing itself any favours though, as the latest delay to the process was from Ofcom itself, when in October 2011 it said it would need to run a second set of consultation with the carriers due to the significance of the decisions it had to make. This doesn’t instil confidence in a regulator that exists solely to make those sorts of decisions.

There’s some talk that the UK has benefitted that from holding back by seeing the mistakes that other operators might have made in their rollouts but I don’t think that holds much water.

By the time that the first LTE network finally do come online in the UK it’s more likely that we will have suffered years of slow lane mobile speeds, and many millions of pounds lost due to the data bottleneck that’s been imposed on UK business, at a time when the economy could very much do with a boost.

It’s almost as bad as the UK’s train networks, which I have to suffer everyday on the First Capital Connect Line. Oh don’t get me started…

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