Watchdog sets 4G auction for next year

The communications watchdog has fired the starting pistol for next-generation internet services on mobile phones, with operators set to battle it out for licences at an auction in 2012.

Ofcom yesterday announced plans for the largest single spectrum auction, which will allow Everything Everywhere, O2, Vodafone and 3UK to provide UK customers with 4G services.

Benoît Reillier, a director at KPMG, said: "This is a significant announcement; everyone has been waiting for it for a while. The outcome will shape the mobile landscape for years to come."

The auction, Ofcom said, will include safeguards and coverage conditions to promote competition and "significantly widen the coverage of mobile broadband" to 95 per cent of Britons.

The 3G auction at the height of the dot.com boom brought the Government £22.5bn, but many believe this time round, the spectrum is likely to raise only between £2bn and £4bn. Ofcom would not be drawn on the potential price but raised the minimum reserve, saying it would cover the costs of the auction and discourage frivolous bids.

Spectrum is vital for operators to support the growth in mobile internet data as the popularity of smartphones and tablet computers continues to gather pace. Ed Richards, the chief executive of Ofcom, said: "This is a hugely contested area. These are the strategic assets for competition in this market for the next 20 years."

This auction will offer 80 per cent more spectrum than was released in the 2000 auction. "Arguably this is the most significant event ever in terms of volume and quality of spectrum," Mr Richards said. The regulator is to offer a block of 800MHz – following the digital TV switch-over – and 2.6GHz, both described by the regulator as being "in the sweet spot" of the spectrum scale.

4G offers increased speed of mobile internet use by up to 100 times as well as reduced latency and is more efficient. Mr Richards said: "This is a step-change in the quality of service offered."

The regulator decided to impose caps as it feared a fully open auction could risk hampering the ability of the smallest operator, 3UK, to compete. Insiders at the mobile group had warned that it could exit the market if it felt unable to challenge the larger operators.

Kevin Russell, 3UK's chief executive, hailed yesterday's announcement, which keeps the principle of four wholesale operators at its core. "This is a clear and strong commitment from Ofcom and the UK Government that will stimulate investment in mobile broadband and protect UK consumers," he said.

It has not only set spectrum caps for the operators but also, more unusually, "floors". Mr Richards said: "This is so we're confident at least four operators will hold sufficient spectrum to be credible network wholesalers."

Tom Alexander, the chief executive of Everything Everywhere, said the auction provides the industry with the opportunity to move forward, but was unhappy about the cap and allocation of certain other spectrum bands.

The regulator has opened the proposals to consultation until 31 May, with a final statement published in the autumn. The auction is expected to take place by June 2012. This means UK customers will not be using 4G handsets until at least 2013.

4G vs 3G

4G is the next generation of mobile services and will be particularly effective at increasing the speed users can surf the internet and reduce latency, or lags on the line.

Ofcom's chief executive Ed Richards said it equates to "domestic residential broadband". Terry Norman, the principal analyst at Analysys Mason, said that true 4G would bring absolute top speed of 100Mb, although the average will be lower. It should blow current 3G services – which offer an average of 1Mb – out of the water.

Ofcom, however, does not want to lift expectations too high, saying consumers should expect at least 4Mb. It will allow video streaming on the move without the buffering and the ability to download a daily newspaper as if on a home computer.

The technology is also cheaper for operators as it is more efficient, "so operators may look to compete on price", Mr Norman added.