UK 4G auction reserve prices proposed, process continues (slowly)

Regular blog readers will be familiar with the long-running saga of the UK 4G auctions. (If you are looking for a speed read, these Ofcom media briefing slides give a rose-tinted view of the current status).

On Tuesday this week Ofcom published a statement setting out its decisions on various outstanding issues  and a draft Information Memorandum for bidders.


Promoting competition

Ofcom has decided that in order to achieve their policy objective of promoting competition that they should promote competition at the national wholesale level. Ofcom consider that three operators is insufficient to provide that competition and as a result decided to:

(a) reserve a spectrum package for an operator other than Vodafone, Telefonica and Everything Everywhere. They have somewhat modified the available portfolios from the consultation:

(b) impose safeguard caps  to prevent highly asymmetric spectrum holdings. They have confirmed the safeguard caps proposed in the prior consultation of an overall spectrum cap of 2 x 105 MHz and a sub-1GHz cap of 2x 27.5 GHz.

Ofcom has also decided not to reserve any 2.6GHz spectrum for low powered shared use, instead leaving it to the auction process to decide whether this would be an economically optimal outcome.

Promoting mobile broadband availability

Following earlier consultation, Ofcom has decided to include a coverage obligation in one of the 800 MHz licences. The obligation will be to provide mobile broadband coverage for indoor reception to users in an area within which 98% of the UK population live and 95% of the population in each of the region (this in intended to ensure that the UK-wide 98% is not met by 100% coverage in English towns and poor coverage in rural Scotland). This coverage is to be achieved by 31 December 2017.

Indoor mobile broadband coverage is referred to loosely in the summary by reference to enabling most households to get at least 2 MBit/s speeds. The detailed definition is rather more technical:

 “the service must be provided using radio equipment which is not situated inside the relevant residential premises;

[…]  the radio signal propagation loss from the outside of the building to the location inside the building does not exceed:

a. 13.2dB for radio signals in the frequency ranges 791MHz – 821MHz and 832MHz – 862MHz;

b. 13.7dB for radio signals in the frequency ranges 880MHz – 915MHz and 925MHz – 960MHz;

c. 16.5dB for radio signals in the frequency ranges 1710MHz – 1785MHz and 1805MHz – 1880MHz;

d. 17.0dB for radio signals in the frequency ranges 1900MHz – 1980MHz and 2110MHz – 2170MHz;

e. 17.9dB for radio signals in the frequency range 2500MHz – 2690MHz;

f. Any other propagation loss notified to the Licensee by Ofcom in respect of radio signals in any other frequency band.”

For more details as to how this will be assessed see this Notice of Compliance Verification Methodology. It will be interesting to see what compliance with this condition looks like in practice – I’d welcome comments from any radio propagation experts reading this.

Spectrum Packaging and Auction design

Ofcom have decided to use the following lots:

  • a 2 x 10MHz lot for that part of the 800 MHz band with the coverage obligation;
  • 2 x 5 MHz for the remainder of the 800 MHz band;
  • 2 x 5MHz lots for the paired 2.6GHz; and
  • 5 MHz for the unpaired 2.6 GHz spectrum.

The auction will be a combinatorial clock auction.

Reserve prices

 Ofcom have set the follow reserve prices:

Licence Condition and DTT Co-Existence

The licences will be UK wide, technology and service neutral and (with some caveats) tradeable. They will be indefinite in duration, although terminable on five years notice after the first twenty years.

There are a number of technical condition and additional conditions and proposals to deal with DTT co-existence.

Annual Licence Fees for existing 900 MHz and 1800 MHz spectrum

Rather unhelpfully, Ofcom indicate that they do not propose to formally consult  or decide on their approach to annual licence fees for existing 900 MHz and 1800 MHz spectrum until after the auction (leading to significant valuation risk) but they have shared their current view:

“170. We have summarised responses to our January 2012 consultation and our view of those responses in Annex 12. Having considered those responses, we remain of the view expressed in the January 2012 consultation that it is likely to be appropriate to draw on evidence from the following three methodologies to estimate full market value:

a) the linear reference price methodology described in the March 2011 consultation, using all bids made in the UK Auction;

b) the Additional Spectrum Methodology described in paragraphs A13.66 to A13.75 of the January 2012 consultation; and

c) values from Auctions for comparable spectrum in other countries that we consider to be sufficiently competitive, adapted to reflect UK circumstances. This is likely to include considering the relativities of different frequencies in Auctions where multiple frequencies were sold (as described in Annex 12)

12.8 We are not ruling out using technical and cost modelling in addition to inform our decision on ALF levels. As we set out in the March 2011 and January 2012 consultations, spectrum values derived from technical and cost modelling are subject to a considerable margin of error and such modelling may therefore be of limited value. We will review the position on this after the Auction to consider whether such modelling is likely to result in information which is more reliable than that from other sources.

12.9 We recognise that we need to consider the calculations under each methodology and their outputs with care. They have some limitations both individually and in combination. However, by using a broad set of evidence, and by using market information in particular, we believe that our approach is likely to be appropriate to the circumstances. We believe that considering these three methodologies together sufficiently addresses the risks that might be introduced by a mechanistic link between Auction prices and ALF, while still allowing us to use a range of information to estimate full market value.”

Next steps and timeframe

Finally, and very disappointingly, the statement signals yet a further delay in the process, with Ofcom only indicating that they will invite applications to take part before the end of 2012, meaning that the auction is unlikely to take place until 2013.