Ofcom’s Auction of the MOD spectrum – is this to be another lost opportunity?

Ofcom’s Auction of the MOD spectrum – is this to be another lost opportunity?

Ofcom is consulting on the auction of the Ministry of Defence (MOD) spectrum at 2.3 GHz and 3.4 GHz. The document comes across as one of those great leaps backwards. It begins by asking the wrong question: how quickly can we auction this spectrum? As a result the UK could be by-passing uses that would be of considerable greater value to UK consumers and to the UK economy as a whole.

There are three factors determining the auction value of mobile spectrum. The first is how well the radio waves travels. This sets how much it will cost to provide reliable radio signals over large areas. The second is whether the spectrum is internationally harmonised. This opens-up the supply of kit to put the spectrum to work. The third is whether the spectrum is likely to come built into every new smartphone.  This delivers the revenue prize and can multiply the price mobile operators will pay by up to a factor of 10.

There is a fourth factor impacting the wider economic value of spectrum. That is whether it is internationally harmonised for unlicensed WiFi use – where the economic value to the country sky-rockets by a factor of 100.  But no enterprise will bid for unlicensed spectrum…as its use is free to all. This is why the consultation document is asking the wrong question. Consumers want a single WiFi to serve all the rooms in their house. The current unlicensed band is congested and the alternative at 5.8 GHz does a poor job as walls block the signals. There ought to be a public debate on the unlicensed use of both the 2.3 GHz and 3.4 GHz MOD spectrum but the presumption of a spectrum auction is suppressing this discussion.

The 3.4 GHz band raises a different issue. The spectrum in the range 2.6 – 3.4 GHz is a cross-over band between being at the very edge of what is suitable for mobile coverage and the territory of what is also good for fixed point-to-point radio links. The attractiveness of 3.4 GHz for mobile use lies sometime in the future (after the recently auctioned 4G spectrum at 2.6 GHz has been fully exploited) to take the load off the national 4G networks at traffic hot spots.  In the near term the 3.4 GHz band looks particularly suitable for its second use of linking 4G mobile cell sites back to the network outside of urban areas. It offers a useful alternative where BT Openreach is slow to reach a cell site with a fibre optic cable.

This brings me back to explain why this consultation document is such a great leap backwards. It is a leap backwards from another current Ofcom consultation that is proposing a future of spectrum sharing. “Smart” sharing significantly advances the economic value the UK secures from its scarce spectrum. Why the two approaches collide so sharply is that the 3.4 GHz cross-over band has the potential for “quadruple sharing”. It could be shared between (a) its mobile use for tiny cells in dense urban area traffic hot spots and (b) linking mobile base stations back to the network in semi-rural areas where BT Openreach currently has a monopoly. In both “use cases” the spectrum could be shared between competing mobile operators. They already do this with some fixed link spectrum. But mobile cells at 3.4 GHz are so compact that between each 3.4 GHz cell from any one mobile operator there will be huge gaps allowing multiple uses by competitive mobile operators with simple “sharing” processes. This band could have a show piece of “smart” spectrum sharing.

As a matter of balance one has to look at the other side of the story. MOD wants the cash and wants it now. They have been led to believe the band is likely to be “attractive” to communications companies wishing to develop 4G networks. But just how attractive is it really in cash terms?  The critical issue is whether 3.4 GHz is likely to find its way into smartphones en masse in the UK market any time soon. For 3.4 GHz cells to be useful in taking traffic off the main 4G networks it is not just a question of the flagship smartphones having 3.4 GHz but a sizeable fraction of the entire installed base of mobiles. Smartphone manufacturers are already struggling today to accommodate the existing number of bands and “carrier aggregation” is proving particularly problematic. The demand in Europe for 3.4 GHz has been significantly reduced with the recent injection of much better spectrum at 2.6 GHz at the 4G auctions. A few years ago Ofcom sold some spectrum at 1.5 GHz that held little prospect of finding its way into the global mobile supply chain. It sold for only £0.41m per MHz. On this basis the 150 MHz of MOD spectrum at  3.4 GHz spectrum would only  fetch £61m. If MOD  waits 3-4 years for the global handset situation for 3.4 GHz to clarify the money raised might be many times this figure. They are selling it too soon to realise its true value as mobile spectrum and the country is likely to see only a fraction of its full potential ever exploited.

If unlicensed spectrum generates considerably higher economic value, smarter spectrum sharing could deliver four times the spectrum efficiency and MOD are likely to be raising only relatively “small change” by selling the spectrum too soon…the auction of the MOD spectrum looks to me like a great leap backwards into the land of lost opportunities.


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