What do the auction results tell us?
The mobile operators have haemorrhaged nearly £1.4 Billion of cash – money which can’t now be spent on building networks, creating innovative services, building shareholder value – and generally driving the economy.
It looks more like a 5G tax grab and could easily dampen activity and demand, instead of driving it on.
The prospective ‘new entrants’ missed out completely. No doubt, they were encouraged to participate to drive the auction frenzy.
All four incumbent network operators took a similar hit from the auction – with Three showing admirable self-control. O2 will now focus on catching up on their 4G capacity with the 2.3GHz band they won.
But the auction won’t have incentivised any single operator to break ranks and push on early with 5G.
Why is the 3.5Ghz Spectrum so important?
The 3.5GHz spectrum is an essential forerunner for 5G.
It was fought over so fiercely but doesn’t offer an easy route to more network capacity – unless operators already have a 3.5GHz base station grid ready to go.
The spectrum is valuable immediately – but only if you have densified your network. Without densification, 3.5GHz will just create a coverage blanket, like Swiss cheese.
The UK operators don’t have these grids today. They’re still essentially blocked by one of the biggest barriers to densification today – the dearth of Dark Fibre.
O2’s purchase of 2.3GHz spectrum contrasts sharply with the hustle and bustle around 3.5GHz.
Not only did O2 get the 2.3GHz for less per MHz than the 3.5GHz – it can also be dropped onto the existing base station grid more easily to provide better 4G coverage. Comparable to the 1800MHz and 2.5GHz spectrum already in use.
Those that follow these developments know the auction was delayed because of legal action by Three and BT who challenged Ofcom’s proposed spectrum caps. Three thought they were too generous (to BT) and BT thought they were too stingy.
The idea behind the spectrum caps was to even out the spectrum holdings between the mobile operators.
Before the auction O2 and Three had 13% each. Vodafone had 28% and BT had a whopping 48%. After the auction, BT dropped to 42%, Vodafone moved up 1% to 26%. And the big winner was O2 who gained 8% – moving up to 21% – but with still less than half BT’s holding.
Three remain relatively ‘disadvantaged’ losing 1% falling to 12% overall. You can absolutely see why Three would have liked BT further capped. Outbidding them was always going to be pointless.
So, 3.5GHz spectrum demands investment in network densification – and everything that goes with that. But the collective investment treasure chest has been seriously drained by the cost of the spectrum auction.
How to kick-start 5G?
Ofcom isn’t proposing any coverage obligations on the winning bidders, like it did with the 4G auction in 2013. That’s because these latest frequencies are more about boosting network capacity than expanding network coverage.
Looking back, perhaps Ofcom could also have framed the auction to include a 5G rollout obligation? Not the usual blanket rollout obligation – where Mobile networks are stretched to the rural fringe.
Instead, a 5G rollout obligation to jumpstart densification in the hearts of our biggest cities. Being first to 5G means rapidly cranking up the virtuous circle of the 5G ecosystem. Networks, Devices, Applications, Services, Coverage and Capacity.
But just a minute, couldn’t the government help the operators much more by using its big-ticket bonanza to kick-start the 5G ecosystem? It could do considerably more than what we can see so far.
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