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Summary

On April 4, 2018, Ofcom announced the results of the principal stage of its 4G and 5G spectrum auction, which began on March 20, 2018. EE, Vodafone, Telefónica, and H3G were all awarded frequencies for a total value £1.36bn ($1.90bn), far above the reserve valuations of £70m.

O2 almost doubles its spectrum holdings following auction, allowing it to immediately increase capacity to meet demand

Ofcom has finally concluded its auction of spectrum in the 2.3GHz and 3.4GHz bands after the auction was initially postponed in 2016, following the EC's decision to block the acquisition of O2 by H3G, and again in 2017, following legal challenges regarding spectrum caps and competition.

Although five companies took part in the auction, only four operators were successful in being allocated the 34 lots of spectrum: Airspan Spectrum Holdings did not win spectrum in either band. EE won 40MHz of 3.4GHz spectrum for £303m; H3G won 20MHz of 3.4GHz spectrum for £151m; Telefónica was awarded all 40MHz of 2.3GHz spectrum for £205m and 40MHz of 3.4GHz spectrum for £318m; and Vodafone won 50MHz of 3.4GHz spectrum at a cost of £378m. Bidding was fierce: the four lots in the 2.3GHz band were sold far above the £40m reserve, at £205m, and the spectrum in the 3.4GHz band sold much higher than the expected £30m reserve, at £1.15bn.

The new spectrum assignments see EE/BT holdings increase from 255MHz to 295MHz. Vodafone's allocation has increased significantly from 176MHz to 226MHz and O2 has almost doubled its holdings from 86MHz to 166MHz. H3G's allocation has increased slightly from 130MHz to 150MHz. O2 purchased the most spectrum during the auction and has increased its share of immediately usable airwaves from 14% to 20% and total spectrum from 12% to 18%.

The frequencies will let operators add extra capacity to their existing networks without having to add many new base station sites. They can also begin to prepare for the launch of 5G. In fact, of the total 190MHz of spectrum auctioned, 150MHz is 5G suitable. Although the 2.3GHz band will help improve operators' 4G capacity and is immediately usable, the 3.4GHz band is the one earmarked for 5G, which is expected to be launched by 2020. The UK is not the first EU country to auction 5G-suitable spectrum in the 3.4GHz band. According to Ovum's Spectrum Auction Tracker: 2017, Ireland conducted an auction in May 2017, achieving $92.8m or a $/MHz/pop value of 0.0556. However, the UK $/MHz/pop value is much higher than this at 0.1643.

Ofcom will now move to the assignment stage, which is the last bidding stage of the auction. This allows companies that have won spectrum in the principal stage to bid to determine where in the frequency bands their new spectrum will be located. After the end of the assignment stage, the winning bidders will be issued licenses within a few days. These will be valid for 20 years.

Appendix

Further reading

Spectrum Auction Tracker: 2017, TE0007-001188 (September 2017)

Spectrum Requirements for 5G,TE0007-001111 (February 2017)

"Ofcom confirms spectrum caps in its consultation on the postponed 5G auction," TE0007-001167 (July 2017)

"Regulators are preparing to make the 3.5GHz band the first 5G spectrum band," GLB005-000005 (November 2017)

Author

Sarah McBride, Analyst, Regulation

sarah.mcbride@ovum.com

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