4G Auction – You cannot get better mobile connections by the Chancellor holding a bundle of £50 notes to his ear

4G Auction – You cannot get better mobile connections by the Chancellor holding a bundle of £50 notes to his ear

The success of an auction is normally measured by the money it raises. Spectrum auctions are different. Raising money is only one of its objectives. Another is to concentrate the best spectrum in the right hands to turn it into a first class high-speed mobile infrastructure to underpin UK success in a growing digital economy. A third priority is getting lower mobile phone bills by spreading the best spectrum around to maintain competition. The sting in the tail is that all three objectives pull in quite different directions…

Governments over the past 25 years have been trying to resolve the same three contradictory targets for giving out radio spectrum.

For 2G (GSM) the Government’s top priority was the early rolling out of new digital mobile networks compatible with the rest of Europe. A second priority was to provide spectrum to increase the number of competitive mobile operators to lower phone bills. Bottom of the list was money to the Treasury. They got none.

The result was a hugely successful digital mobile infrastructure that far exceeded expectations and a new European digital mobile industry was created in the process (Vodafone being the UK’s best legacy of this).

The government then changed the rules. The 3G spectrum was to be auctioned. Whatever the officially stated purpose of the auction was, the appointment of a Merchant Bank to advise the government on the auction spoke volumes on what the top Government priority was going to be. The second priority was to increase network competition (lower mobile bills) by setting aside spectrum for a new entrant. Bottom of the priority list was the roll out of more advanced mobile networks (3G) across the UK.

The result was a huge win for the Treasury (exceeding expectations). Mobile phone bills also came down as H3G valiantly price-cut their way into a sustainable market share. But the books still had to be balanced. The mobile operators slashed their capital budgets. This led to the UK 3G networks arriving several years later than Japan, coverage was patchy (and still is) and the 3G networks seriously underperformed for the next 7 years.

The rules were changed again by the last Government. Ofcom were to have a major say on priorities but informed by only one duty – to serve the interest of consumers.

For 80% of consumers the top priority is lower prices…now! Not surprisingly Ofcom has given highest priority to spreading the precious spectrum below 1 GHz around enough to sustain a four mobile operator market – thus furnishing the best conditions for ever lower mobile phone bills.

Coming second has been raising the money for the Treasury. The Treasury expectation is £3.5B. This is now the benchmark by which the auction success will be measured by most people.

Arguably the lowest priority has been the early roll of the new more advanced 4G networks – which appears evident from how late the UK is in rolling out its 4G networks.

But Ofcom only has limited powers to determine policy outcomes. The rules require the final arbitration between these three important national political objectives to move to an auction floor.

Economists, who advise on these auctions, paint a picture of business leaders, in command of all the facts, sitting in the auction room with precise business models determining their bids. None of these economists  have ever sat in a corporate headquarters of a mobile phone company. In the real world nobody has all the facts and all sorts of extraneous influences come forcefully into play, like the effect on a company’s share price, the value of denying a competitor any spectrum or what is happening in far away places like Paris, Bonn, Madrid and Hong Kong – where investment in the UK is only one of a number of competing pressures for scarce capital.

Fascinating as auctions are they seem an absurd way for a country to set its political priorities or decide the form of a vital national infrastructure. The country cannot get better mobile connections (or lower phone bills) by the Chancellor holding a bundle of £50 notes to his ear. One pound raised at the auction and given to the Treasury is one pound that will not be invested in UK’s already late  4G networks. The media and political agendas need to be reset to view the outcome of the 4G spectrum auction in a more balanced way.

Further reflections (27th Feb): the UK 4G auction is now history. The media have branded it a failure. It did not raise the £3.5B the government were anticipating.  In allowing the expectation of £3.5B  to stand and failing to deliver it has made 4G itself look like a damp squib to many consumers. That is a pity.  The expectations were not of Ofcom’s making. But neither Ofcom nor the Government have made much effort to explain to the media or the public why a spectrum auction is not held specifically to raise the maximum money for the sale of a public asset (spectrum).

The real failure of the 4G auction was the UK losing 4 years in getting 4G off the ground. Ofcom’s policy of linking spectrum holdings under 1 GHz with competition policy was misconceived from the outset. Ofcom’s approach over the past two years has been more guided by Ofcom’s lawyers in an effort to avoid another judicial review than the needs of the country for a better mobile infrastructure. The reason for this damaging delay can be simply summed-up – everyone lost the plot.


2 Responses to “4G Auction – You cannot get better mobile connections by the Chancellor holding a bundle of £50 notes to his ear”

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