What does the Ofcom 5G auction mean for the UK mobile industry?

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After months, years even, of speculation and legal action, the first phase of Ofcom’s 5G spectrum auction is finally over.

The £1.4 billion raised for the treasury was a tiny fraction of the gargantuan sums generated by the infamous 3G auction of 2000, and less than the £2.3 billion paid in the 2013 sale, but this was still more than initial estimates.

It appears as though all stakeholders will be happy with the result – despite the courtroom drama that preceded the process. But what does it mean for the UK market?

O2 gets more capacity

O2 perhaps had the most to lose at this auction. In 2013, it won 20MHz of 800MHz spectrum that would form the basis of its 4G network, but none of the 2.6GHz airwaves up for grabs. The former band offers long range, but lacks the capacity of 2.6GHz, meaning O2 was at a potential disadvantage when it came to densifying networks in urban areas.

The Telefonica-owned operator had shrugged off suggestions that this was an issue in the past, preferring to focus on the industry’s favourite complaints about access to sites and planning permission, but the argument has now been put to rest.

“O2 emerged as the big winner, sweeping up all of the crucial 2.3GHz airwaves that can immediately offer much-needed 4G capacity,” said Kester Mann, an analyst with CCS Insight. “As the most spectrum-constrained operator, this sale was more crucial to O2 than any of its rivals and the result gives it the certainty to continue its mobile-centric strategy in the UK market. It will also give parent Telefonica some clarity over its intended IPO for the network.”

O2 is proud that uSwitch users voted that it had the best coverage, but network benchmarking firms have consistently ranked it last in overall tests, despite some good performances in individual categories and in some regions. The operator is renowned for its customer service, but this can only go so far as demand for coverage and data goes up.

The acquisition of the 2.3GHz airwaves gives O2’s 4G plans a huge shot in the arm and it has already confirmed it will deploy the spectrum across its LTE network immediately in London, with other cities, including Newcastle, Leeds and Edinburgh in the coming months.

“With this spectrum investment we can build on our publicly recognised Best Network Coverage, to lead the way on network reliability and service as well,” said O2 CEO Mark Evans. “The real winners in this auction are customers as O2 invests to further strengthen its award winning network. The airwaves we've secured allow us to further enhance our network, both now and in the future.

(Image: © O2)

Operators can start planning for 5G

All four major operators won 3.4GHz airwaves that will power the first tranche of 5G services when they arrive in the UK – probably in 2020. O2 will use the 40MHz of 3.4GHz airwaves it won to power its planned 5G testbed in the O2 arena later this year and eventually its future network, as will EE.

EE was banned from participating in the 2.3GHz auction because of cap on ‘usable’ spectrum imposed by Ofcom before the auction, but it will be happy at securing spectrum for its 5G service, as will Vodafone, which won 50MHz worth – more than anyone else.

“Vodafone will also be satisfied with the outcome, spending the most on 5G spectrum,” added Mann. “This re-enforces its renewed long-term commitment to the UK market following several years in the doldrums. It still has plenty to do to turn its fortunes around, but today’s news will boost long-term efforts to regain lost momentum.”

Three won the least amount of any spectrum in either auction, getting just 20MHz of 3.4GHz to play with. This was a little surprising given the legal action it pursued in a bid to make Ofcom’s spectrum cap even lower.

“The outcome for Three will do little to improve its precarious market position,” continued Mann. “Having campaigned tirelessly for more favourable conditions, it was surprising not to see it spend more. It will be particularly disappointed to miss out on the vital 4G airwaves to support its data-hungry customers. Three remains sub-scale and without fixed-line assets in a market gradually moving towards multiplay services and today’s outcome will do little to dampen doubts over its long-term future.”

However it’s worth pointing out that Three does have significant 3.4 – 3.9GHz spectrum assets that it acquired during the takeover of UK Broadband, which delivers fixed wireless access (FWA) broadband under the Relish brand.

In terms of the other participants, small cell operator Airspan walked away empty handed, while Hull-based FWA broadband firm Connexin withdrew before the auction got underway.

What now?

Ofcom will be happy that its goal of releasing as much spectrum as possible for 4G and 5G services has been furthered and that its spectrum cap has been implemented without further legal impediment.

A lot of headlines will state that 5G in the UK is now one step closer, but the reality is that that the 2020 deadline is still largely set in stone unless one of the UK operators decides to jump the gun. The 3.4GHz band is just one of many bands earmarked for 5G including 700MHz and millimetre wave (mmWave) spectrum and this is merely the first stage.

Indeed, it will be the 700MHz frequencies used by Digital Terrestrial Television (DTT) that are the next to be made available at auction – possibly next year – so although this was an important development, it wasn’t judgement day.

“An unsatisfactory outcome in this auction was never going to necessarily spell the end to any one operators 5G future given that the technology will ultimately work across a number of spectrum bands, both new ones and ones already held by the mobile operators,” commented Matthew Howett from Assembly Research.

So if there were no losers, then who were the winners? Maybe it was O2, but ultimately it is the consumers who will get better networks from operators who can spend more money on infrastructure rather than spectrum licences.

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